Africa reinsurers rising to the challenge – Munich Re

Africa reinsurers rising to the challenge – Munich Re | Insurance Business New Zealand

Reinsurance

Africa reinsurers rising to the challenge – Munich Re

Long-term resilience and sustainability plotted amid inflation and evolving risks

Reinsurance

By
Kenneth Araullo

Reinsurers focused on Africa are addressing the dynamic risk environment on the continent, despite challenges such as persistent high inflation and slower economic growth, as revealed in new insights from Munich Re.

The impact of climate change, marked by an increase in extreme weather events and significant natural catastrophe losses recorded from 2020 to 2023, poses a substantial threat, particularly in Sub-Saharan Africa (SSA).

The region also frequently faces severe droughts, floods, and storms, leading to economic losses and loss of life, as was starkly demonstrated by Cyclone Freddy, which claimed over 1,400 lives across Madagascar, Malawi, Mozambique, and Zimbabwe in early 2023.

Nico Conradie, CEO of Munich Re of Africa (MRoA), emphasized their commitment to evolving their underwriting solutions to align with these changes.

“As we enter 2024, Munich Re of Africa is focused on enhancing and developing underwriting solutions that better reflect the evolving risk landscape. It goes without saying that we will continue to stand by our clients even after difficult years, as the last ones have been. Munich Re’s business and its client relationships are long-term, with risk-adequate prices being essential to offer reinsurance cover sustainably,” Conradie said.

Insurers and reinsurers are also positioned to assist governments in meeting their net-zero greenhouse gas emissions pledges by 2050, by innovating financing and underwriting solutions that transition from coal-based to renewable energy sources.

“Munich Re has a clear goal: we will make our contribution to achieving the Paris climate targets,” Conradie said. “By the end of 2020, Munich Re had already set GHG emission targets for our investments, reinsurance transactions and own business operations: we stopped investing in companies that generated more than 30% of their earnings from coal or by extracting oil from oil sands, and we stopped insuring new coal-fired power plants, new coal mines, and oil sands mines.”

Economic pressures for Africa’s reinsurers

Amid inflation and currency depreciation challenges in SSA, Sipho Mthabela, head of Africa Strategy at MRoA, highlighted the economic pressures affecting the insurance industry.

“Many countries in the Sub-Saharan Africa region are facing challenges with double-digit inflation which is often closely linked to the depreciation of their currencies against the US dollar. This has a big impact on our businesses due to shortages of in-country foreign exchange,” Mthabela noted.

The potential for infrastructure failures, particularly in water services, also represents another significant risk.

“It is possible that the insurance sector has made provisions for possible loss and damage exposure due to electricity grid failure and under-estimated the risk attached to water infrastructure failure; the latter could result in serious water shortages with significant and unconsidered consequences,” Conradie said.

Differences in market conditions across Africa’s 54 countries, each with its unique regulatory, cultural, and economic environment, necessitate tailored reinsurance solutions. Mthabela emphasized the importance of acknowledging these nuances.

“Africa is a combination of different countries, cultures, currencies and regulations; how insurance is conducted and how insurance professionals approach the discipline is peculiar to each country,” Mthabela said.

The South African market has experienced several shock loss events from 2020 to 2023, contributing to a hardening of reinsurance conditions, contrasting with softer yet competitive terms in the rest of SSA.

Despite these trends, Mthabela also sees significant opportunities to increase insurance penetration across the continent by introducing innovative products tailored to Africa’s demographic trends and untapped agricultural potential.

“Over 60% of all arable land in the world sits on the continent. If Africa can find ways to optimally utilize this asset, we will rewrite the narrative on economic growth; employment; food security; foreign currency reserves; and Agri-focused insurance and reinsurance products just to name a few,” Mthabela said.

“Our willingness to share our technical insurance and reinsurance expertise has stood us in good stead across Africa; in interactions with clients and partners we frequently encounter individuals who recall attending a Munich Re backed program at some point in their careers,” Conradie added. “The effort that we have made over decades, and continue to make each year, is a small part of our contribution towards increased insurance penetration on the continent.”

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