For almost two decades, growth in the insurance markets of Sub-Saharan Africa have been buoyed by the continent’s economic boom. With average growth in gross domestic product (GDP) across the region far outpacing much of the developed world, the African continent has presented an extremely attractive environment for domestic, regional and international investors seeking to enhance returns.
However, the fallout from low commodity prices, the slowdown of China’s economic activity and the impact of monetary tightening by the U.S. Federal Reserve are just a number of global issues that threaten to stall growth and stability, and in turn, likely will compromise the development and financial strength of insurance markets across the continent.
In its new report, “Africa’s Insurance Market Prospects Threatened by Low Commodity Prices and Political Uncertainty,” A.M. Best believes that the balance sheets of (re)insurers are exposed to material volatility arising from the uncertain landscape.
Deniese Imoukhuede, associate director, analytics, and author of the report, said: “Sub-Saharan Africa (re)insurers typically maintain low capital bases while many have thin levels of risk-adjusted capitalisation, when measured by A.M. Best. Therefore, material fluctuations in asset values will have significant consequences for (re)insurers’ balance sheets.”
A.M. Best believes that the following factors are key risks to the sector’s financial strength in the region: financial system fragility, asset/liability mismatch and extended delays in premium collection. Deniese Imoukhuede added: “To date, A.M. Best-rated (re)insurers have shown stability in their rating fundamentals, in spite of the underlying difficulties within their operating environments. These companies’ risk-adjusted capitalisations remain at strong levels, mostly due to their large and underutilised capital bases relative to their underwriting risk exposures. Additionally, balance sheet strengths are supported by a high quality reinsurance panel, and in some cases, strengthened reserve provisions owing to mounting inflationary pressures.”
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=251495.