African reinsurers forgotten by insurers in Africa

El-Ghamrawy: poor solvency position and low credit rating main challenges impeding African reinsurance growth

Africa Re Seizes 5% market share, South Africa achieves highest growth rates

African insurance companies are facing many challenges in the current period because of the political and security disturbances which have hit the continent. Riots and political turmoil have negatively affected the companies which incurred a lot of losses due to disbursing a large volume of compensation and at the same time customers have defaulted on paying the due premiums. These factors have led reinsurance companies to impose severe conditions when renewing annual reinsurance agreements, as most insurers rely on European reinsurance companies.

Experts have attributed the dependency of African insurance companies on European reinsurance to the low capital and ratings of African companies,  which have made them seem unreliable in promptly paying compensation when needed, except for reinsurance companies in South Africa which have capability to expand regionally and globally.

The Africa Reinsurance Corporation (Africa Re) is the only African reinsurance company which has official existence in Africa through its regional offices in the African markets and receives a semi-obligatory legal cession of 5% on all reinsurance treaties from insurance companies in Africa.

Sherif el-Ghamrawy, head of reinsurance committee at the Insurance Federation of Egypt (IFE) and reinsurance sector at Suez Insurance Company, has stated that African reinsurance companies are poorly rated because of their low capital as compared to European and Asian reinsurance companies.

El-Ghamrawy stressed that African companies will increase their capital, attempt to be more highly rated and promptly disburse compensation so as to gain customers’ confidence, because insurers prefer to deal with European reinsurers because of the obstacles facing African reinsurers.

Hany Mhanna, head of the reinsurance sector at Wethaq Takaful Insurance Company, said most African markets are unattractive because they are poor countries, unlike European and Asian countries which have flourishing trade and industry.

The main challenges which have recently faced African reinsurance companies included mainly economic obstacles as the insurance industry is based on industry, tourism, and imports and exports, he noted.

Although Gulf countries are considered small in size, they attract large international reinsurance companies because they have large industrial and commercial institutions. The volume of premiums achieved by companies in these countries is a major factor in making these countries attractive for large international companies in the region, he elaborated.

Mhanna called for the establishment of an Egyptian reinsurance company, as this would help in regulating the insurance market by limiting the competence in prices.

The Egyptian Reinsurance Company had earlier contributed to controlling foreign funds, but it was closed fifty years after being established at the time when each country was establishing its local reinsurance company, he noted.

Ali Bashendy, head of miscellaneous accident insurance committee and technical affairs and reinsurance sector at Arab Misr Insurance Group – GIG, said the Egyptian market has many common political and economic interests with African countries, but there is no co-operation with these countries regarding reinsurance agreements.

The main obstacle facing the Egyptian insurance market is the reinsurance process, which requires approval from the Egyptian Financial Supervisory Authority (EFSA) over the reinsurance company that shall be highly rated and have strong solvency position, Bashendy noted.

He elaborated that all the previous factors have impeded African reinsurance companies from expanding in Africa. Insurers are always cautious in dealing with reinsurers so as not to face obstacles in receiving compensations, he noted. If there is a reliable African reinsurance company, insurers will ask for EFSA’s approval to deal with it as long as it is has high credit rating and strong solvency position, he affirmed.

Insurance companies in the Egyptian market are in need of reinsurers to share and distribute risks with them, but the current disturbances lead reinsurers to impose severe conditions on insurance companies. In addition, the increase in the dollar’s price against the Egyptian pound has raised the value paid from local insurers to foreign reinsurers, while premiums did not increase as they are paid in the Egyptian pound, Bashendy explained.

Gamal Hamza, former chairman of the Egyptian Reinsurance Company, said African reinsurance companies are small in size, have low portfolios and work locally except for reinsurance companies in South Africa which have the capability of expanding regionally and globally.

Insurance companies in Africa incur part of the risks threatening European and Asian markets, especially in London and France, as they assign a small share of reinsurance agreements to African companies, he added.

Although the African market has sufficient reinsurance companies, the insurance sector is so small and has limited capabilities, which has made it difficult for insurance companies in renewing reinsurance agreements due to their fear to be unable to compensate customers.

The most prominent reinsurer in the African market is the Africa Reinsurance Company, as it has many branches and regional offices in most of the African countries. This has enabled the company to have an obligatory share of 5% of premiums in Africa, but some countries are not committed to this regulation such as Egypt which refuses to impose an obligatory fixed rate in a free market.