The underwriting results of sub-Saharan Africa’s reinsurers have shown continued year-on-year improvement, driven by strong pricing actions on loss-affected lines and the global hardening of the reinsurance market, according to a report by AM Best.
Dale Kirby, financial analyst, stated that while the creditworthiness of many African debt issuers remains under pressure, leading to heightened asset risk, reinsurers in sub-Saharan Africa have demonstrated resilience.
“On the whole, AM Best-rated reinsurers in the region have demonstrated a level of resilience amid these challenging conditions, particularly those that have successfully mitigated risks through diversification and proactive risk management,” Kirby said.
The economic landscape across sub-Saharan Africa has been challenging, with inflationary pressures exacerbated by the Russia-Ukraine conflict and lingering supply chain disruptions related to COVID-19.
These factors have contributed to rising global interest rates, increasing the debt-repayment burdens of many African countries. The ongoing strain on the creditworthiness of African debt issuers has, in turn, elevated asset risk for reinsurers in the region.
Sub-Saharan African reinsurers tend to operate with a concentrated focus on one or a few countries, retaining risks locally and often holding assets domestically to align with the location or currency of their liabilities, as well as to meet regulatory requirements. This regional concentration makes reinsurers vulnerable to rapid changes in the economic environment.
However, recent data from institutions like the International Monetary Fund (IMF) suggest signs of economic stabilization. The IMF reports that tighter monetary policies have contributed to a reduction in the region’s median inflation rate, which dropped from nearly 10% in November 2022 to 6% by February 2024.
Additionally, real GDP growth is projected to rebound throughout 2024, potentially easing pressures on external financing for sub-Saharan African nations.
Despite these economic challenges, reinsurers in the region have capitalized on the hardening global reinsurance market, achieving another year of robust underwriting profitability. This positive performance highlights the sector’s ability to navigate a complex environment.
Looking ahead, AM Best believes that the sub-Saharan Africa reinsurance market holds significant potential for long-term profitable growth. The region’s vast reserves of natural resources, solid economic growth prospects, and increasing insurance penetration are seen as factors that could contribute to the continued development of Africa’s reinsurance markets.
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