DOSSIER INSURANCE | Francophone Africa; Reassuring the reinsurers
Today, African insurers’ capital bases are so small that they cannot cover large power plants, ports, oil platforms or local airline fleets. And if there was a catastrophe in a francophone African country, local reinsurers – who buy a share of insurance companies’ risks – would not necessarily have the resources to withstand it. But how can they cover risk if they do not have the means to pay up? That is the big conundrum. Denis Chemillier-Gendreau, president of the consultancy Finactu and an insurance expert, says: “Insurers turn more to reinsurance when they do not have much capital.” Until April 2016, insurance companies in francophone West and Central Africa mostly worked with reinsurers based outside of the continent. Amongst the 14 West and Central African countries in the Conference Interafricaine des Marchés d’Assurance (CIMA), it was estimated in 2015 that 66% of business went to reinsurers outside of the zone, while 34% was with local companies. But since April 2016, the governments of CIMA countries have taken action, spurred on by Adama Ndiaye, deputy general manager of the Senegalese Reinsurance Corporation (Sen-Re) and president of the Fédération des Sociétés d’Assurances de Droit National Africaines (FANAF). The reforms in CIMA’s Article 308 have the goal of helping local firms to grow and to control as big a share of the premiums collected as possible. Several measures have been put in place, chief among them a stipulation that all accident, health, automobile and life insurance must be reinsured locally. Before the reform, 75% of those businesses could be reinsured outside of the zone. The ceiling for foreign reinsurance for medium-sized projects, like oil platforms, has dropped from 75% to 50%. But, due to the lack of strong enough reinsurers, the most costly risks – for large ships, trains, airplanes, etc. – can all still be reinsured outside of the CIMA zone. While it is still too early to see the impact of these reforms on the francophone reinsurance space, there are certainly profits to be made. According to a July 2017 report from Finactu, the CIMA reforms will bring in 68bn CFA francs ($127.8m) in additional business in the short term. The report adds: “That is two times the turnover of Cica-Re, four times that of Aveni-Re and five times that of the Société Commerciale Gabonaise de Réassurance (SCG-Re). If it were shared out only by the six reinsurers in the CIMA area, that total would mean a 65% rise in their total turnover.” Some analysts say that the CIMA reforms are a much-needed bit of protectionism. “It was necessary to limit the outflow of reinsurance capital, as the CIMA balance of payments is not good,” says Chemillier-Gendreau. It also helps to finance local economies.
Almost two years after the implementation of the reforms, reinsurers are growing. Of the six that have their headquarters in the CIMA zone, two companies have increased their capital base and are ready to benefit from the strengthening of the sector. In February 2017, Lomé-based Cica-Re raised its capital base from 20bn to 50bn CFA francs. Meanwhile Aveni-Re’s rose from 10bn to 16bn CFA francs in 2016. Aveni-Re’s chief executive, Seybatou Aw, says that the company’s growth will continue: “A third fundraising operation has already begun to bring it to 22bn CFA francs in the first half of 2018.” SCG-Re, which is part of the Fonds Gabonais d’Investissements Stratégiques, has more modest goals. It announced in January that it plans to double its capital from 5bn to 10bn CFA francs by 2022. “The challenge is to convince shareholders that the company will be able to make enough profits from the new funds,” says Finactu’s Chemillier-Gendreau. He adds: “The reforms are going to accelerate the process of ‘creative’ destruction. The best ones are going to mature, and the weakest ones will disappear. You have to be big to succeed, to absorb the fixed costs.” Another recent development is that international companies, including African ones from outside the CIMA zone, are opening up subsidiaries or representative offices, which are useful for small markets because they are less costly to manage. After getting approval for non-life insurance in November 2017, British firm One Re – which specialises in reinsurance for manufacturing, commercial real estate and major infrastructure projects – set up operations in Libreville. With an office in Abidjan, the Société Centrale de Réassurance – a subsidiary of Morocco’s Caisse de Dépôt et de Gestion – got its authorisation to operate in January 2018. Its goal is to work with Moroccan companies that are expanding their activities in West and Central Africa. Kenya-Re has plans to open up a subsidiary in Côte d’Ivoire. Active in Africa for about three decades through its French subsidiary, Germany’s Hannover Re – which is the third-largest reinsurer in the world – opened an office in Abidjan in December. It is targeting health and life insurance, “which cannot be covered by reinsurers that do not have operations in the CIMA zone,” says Marthe Ekani Combet, the director of the Abidjan office. Hannover Re is just getting started, but its goal is “to work hand-in-hand with local insurers. The help given to companies will stimulate life-insurance activity,” she adds.
While the foreign reinsurers that are setting up operations have well-developed technology systems and risk-measurement tools, local actors will have to adapt to international standards and demonstrate their technical capacity in order to identify and understand clients better. Finactu’s Chemillier-Gendreau concludes: “They have to learn to choose their risks. African reinsurers often take any comers, seeking to grow their market share. They have to understand that all risks do not have the same cost.” Seybatou Aw, chief executive of Aveni-Re, says that means having workers with strong qualifications. Attracting good employees should become easier as the sector grows. It now represents just 1.2% and 1.4%, respectively, of the turnover of Munich Re and Swiss Re, the top two goal reinsurers, and risks continue to grow in tandem with economic growth.
From the March 2018 print edition