Attending the 51st African Insurance Organisation (AIO) Conference in Addis Ababa was a reminder of the strength of the African insurance industry, as well as the energy and positivity that surrounds it.

It was an extremely popular event, and after three days of back-to-back meetings, insurers made clear their ambitions to support economic development and attract foreign investment. For all sectors of the economy, securing additional investment for growth is vital and insurers at the conference were clear that they could play their part by providing effective risk management and access to greater reinsurance capacity.

There was a huge amount to cover, but one of the most regular conversations I had was about the growing appetite among African insurers for reinsurance facilities as an alternative to traditional treaty reinsurance. Traditional treaty contracts will ordinarily cover a proportion of a portfolio of risks, which means that risk is ceded automatically and efficiently. However, where insurers need to expand the scope or size of a contract, they often found it so expensive that it becomes commercially unviable, leaving a protection gap.

Many of the African underwriters we spoke at the conference needed capacity to plug those gaps in their existing treaty contracts. Demand for MNK International’s new energy facility, now that it has expanded from Latin America to a worldwide product, was significant. The product provides a framework for insurers to cede risk to a group of reinsurers on a case-by-case basis, making it extremely flexible.

It is not just energy. Across a huge number of insurance sectors, from mining to property and casualty, insurers are finding that their reinsurance treaties contain exclusions, and they are consistently bumping against the limits of their existing arrangements. Many have started to look towards a facility to fill the gap.

From discussions, it is clear that underwriters are being offered business which they cannot write because of a lack of reinsurance. This is not just African business, but global opportunities as well, particularly in Asia. Expanding treaty coverage to include international risks can be particularly expensive.

Reinsurance facilities offer a compelling alternative, and in the African market many have decided that securing facilities for individual sectors is a simpler route to expansion and growth. Unlike treaties, which can be costly to amend, facilities are easier to tailor to specific sectors or geographies. Underwriters put a lot of emphasis on this flexibility and they are keen to access solutions that they can start using quickly.

There is also a potential cost advantage, compared to the big treaty reinsurers, if underwriters have a wider appetite in terms of the markets they are prepared to access through the facility. African regulators tend to take a more flexible approach, provided that the reinsurers are reliable and claims-paying. It was clear from the conference that African insurers are keen to explore these opportunities, and see if provides scope for more competitive pricing and better access to capacity.

For those in the market that can offer these products, there are significant opportunities to support the growth of African insurance markets. Speed is important to customers, and so intermediaries should be assessing the products they already have, and where there might be demand in Africa. There was more than one occasion at AIO where I was discussing facilities which were similar to those MNK International had already created in other geographies; these are prime candidates to be expanded into the African market.

Reinsurance prices will continue to fluctuate, and the structural advantages of facilities: flexibility, cost-efficiency, and responsiveness, will make them an obvious route to expansion and growth for many African insurers. Over time, as facilities prove their reliability and confidence grows, it is likely they will become a cornerstone of risk management strategies around the continent.

This would be a significant development for both the insurance industry and for African economies more broadly. The insurance industry is a key enabler of investment into the economy, through its ability to absorb the risks associated with ambitious developments and infrastructure.

To support this activity, and enable growth, African insurers will need reliable access to reinsurance. In a market where capacity is one of the greatest constraints on growth, facilities will be a powerful tool for ensuring that African insurers’ performance matches their ambition.

---

Our Expertise

Specialist Knowledge, Tailored Approaches

We’ve built our reputation by solving complex challenges, identifying emerging risks, and creating bespoke solutions that give our clients a competitive advantage.

Find out how we can help you.