African reinsurers rise to the challenge – Munich Re | Insurance business America
Long-term resilience and sustainability in the context of inflation and evolving risks
reinsurance
By Kenneth Araullo
African-focused reinsurers are addressing the continent’s dynamic risk environment despite challenges such as persistently high inflation and slower economic growth, according to new findings from Munich Re.
The impacts of climate change, characterized by an increase in extreme weather events and significant natural disaster damage from 2020 to 2023, pose a significant threat, particularly in sub-Saharan Africa (SSA).
The region also frequently faces severe droughts, floods and storms, resulting in economic losses and loss of life, as clearly demonstrated by Cyclone Freddy, which caused over 1,400 deaths in Madagascar, Malawi, Mozambique and Zimbabwe in early 2023.
Nico Conradie, CEO of Munich Re of Africa (MRoA), highlighted their commitment to evolving their underwriting solutions to adapt to these changes.
“As we enter 2024, Munich Re of Africa is focused on improving and developing underwriting solutions that better reflect the evolving risk landscape. Of course, we continue to support our customers even after difficult years like the last few. “Munich Re’s business and customer relationships are designed for the long term. In order to be able to offer reinsurance protection sustainably, risk-adequate prices are essential,” said Conradie.
Insurers and reinsurers are also able to help governments meet their commitments to achieve net-zero greenhouse gas emissions by 2050 by developing innovative financing and underwriting solutions that enable the transition from coal-based to renewable energy sources.
“Munich Re has a clear goal: We will make our contribution to achieving the Paris climate goals,” said Conradie. “At the end of 2020, Munich Re had already set greenhouse gas emissions targets for our investments, reinsurance businesses and our own business operations: We stopped investing in companies that generated more than 30% of their profits from coal or by extracting oil from tar sands. and we stopped insuring new coal plants, new coal mines and oil sands mines.”
Economic pressure for Africa’s reinsurers
Given the inflation and currency devaluation 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 the challenge of double-digit inflation, often closely linked to the devaluation of their currencies against the US dollar. This has a major impact on our businesses due to the foreign exchange shortage in the country,” Mthabela noted.
Another significant risk is also the possibility of infrastructure failures, particularly in the water supply.
“It is possible that the insurance sector has made provisions for possible loss and damage due to a failure of the electricity network and underestimated the risk associated with a failure of the water infrastructure; The latter could lead to serious water shortages with significant and unconsidered consequences,” said Conradie.
Differences in market conditions across Africa’s 54 countries, each with its unique regulatory, cultural and economic environment, require tailored reinsurance solutions. Mthabela stressed the importance of acknowledging these nuances.
“Africa is a combination of different countries, cultures, currencies and regulations; How insurance is done and how insurance professionals deal with discipline varies from country to country,” said Mthabela.
The South African market experienced several shock events between 2020 and 2023 that resulted in a tightening of reinsurance conditions, in contrast to milder but competitive conditions in the rest of SSA.
Despite these trends, Mthabela also sees significant opportunities to increase insurance penetration across the continent through the introduction of innovative products tailored to Africa’s demographic trends and untapped agricultural potential.
“Over 60% of all arable land in the world is on the continent. If Africa can find ways to make the most of this capital, we will rewrite the economic growth narrative; Employment; Food inspection; foreign exchange reserves; and agriculture-focused insurance and reinsurance products, to name a few,” Mthabela said.
“Our willingness to share our technical insurance and reinsurance expertise has benefited us across Africa; When dealing with clients and partners, we often come across people who remember taking part in a Munich Re-supported program at some point in their career,” added Conradie. “The efforts we have made over decades and continue to make every year are a small part of our contribution to increased insurance penetration on the continent.”
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2024-04-12 13:10:00
www.insurancebusinessmag.com
