Category: Insurance

African insurance markets suffer from cut-throat competition and excess capacity, African Insurance Organisation (AIO)Secretary-General, Prisca Soares has said.

Soares, who spoke at the just-concluded AIO Conference, said this was not peculiar to Africa alone.

She said as rates were low, regulators on the continent aim at protecting domestic insurers from foreign competition with higher entry barriers.

She, however, noted that the continent’s low insurance penetration was one of the market’s largest opportunities.

She said with the economic rebound, insurers increased their efforts to broaden their product offering and widen distribution.

She said: “Technology provides new avenues for innovation, both in commercial and personal lines, and helps to bridge geographical distances, increases scale and thus improves efficiency.

Soares said:  “Africa’s regulatory framework, though for the first time, is seen by a majority of interviewees in our third Africa Insurance Barometer, as broadly adequate, features among market opportunities and threats as well. The introduction or enactment of compulsory insurance schemes in some markets, as well as tighter capital and solvency requirements contribute to a consolidation and strengthening of the markets.

“However, insurers still wish that regulators would further promote insurance awareness and penetration. Inconsistencies in enforcement and in certain markets a tendency to over regulate and stall business initiatives count as weaknesses while the surge in protectionism seen in many markets remains a double edge sword to many insurers. Excessive competition has turned into another challenge uniform to Africa’s insurance markets. Many executives regard current market conduct as unethical or irresponsible with too many players “chasing the same cake.”

Soares stressed that insurance rates and profitability seem to have bottomed out Africa’s commercial insurance rates appear to have leveled-out. A growing number of executives expect rate increases in the next 12 months, driven by stronger economic growth and the assumption that the regulator will intervene to maintain market safety where rates have

deteriorated beyond reason. As in past surveys, the profitability of commercial lines still benefits from historically better pricing. In addition, recent claims experience has been low in some markets.

“Personal lines are considered to be more stable. Competitive pressure is less pronounced as brand loyalty is higher than among commercial clients. In motor there is some pricing pressure due to higher claims, but it is unlikely to move rates broadly. Profitability has improved slightly and is expected to benefit from economic growth and the potential interference of regulators,” she added.

Analysis of A.M. Best-rated companies in Sub-Saharan Africa under the rating agency’s updated Best’s Credit Rating Methodology (BCRM) and new building block approach revealed that overall, companies have very strong balance sheet strength.

Along with balance sheet strength, the key pillars A.M. Best uses in its analysis are operating performance, business profile and enterprise risk management (ERM).

The report states that this rated population, in general, has adequate operating performance, neutral or limited business profiles and utilises marginal ERM structures.

The Best’s Special read, “(Re)insurers in Sub-Saharan African Markets – Rating Review Highlights,” states that the majority of companies’ balance sheet assessments fall into the “Very Strong” category, mainly reflecting (re)insurers exposure to the quality of assets, quality and appropriateness of reinsurance programmes, strength of reserves and investment volatility. “The relatively basic or non-existent approach to asset-liability management and liquidity management, in addition to country risk, were also important drivers to this assessment”, it added.