Premium flight has a major side effect of reducing the contributions of the insurance sector to emerging economies. Albeit, no country can domicile all its insurance risks/business within its boundary, it is still reasonable for the underwriting firms to retain as much as their capacity can bear before ceding the rest abroad.
If indigenous insurance firms in Africa are not earning premiums from the developed economies, it is expected that they will have a fair share of such revenue coming from their own continent. There are large risks to be managed and huge premiums to be earned on the continent. But it has been estimated that about 75 per cent of reinsurance business on the continent are being handled by firms from developed economies like the Americas, Europe and Asia.
Retention of premiums will help boost the respective countries’ Gross Domestic Product and provide funds to finance developmental projects. In Nigeria there are 56 insurance companies, with only two indigenous reinsurance firms. Huge premiums are earned by the multinationals domiciled in Africa. Countries endowed with oil and gas are juicy markets for the international insurance and reinsurance firms.
Statistics from the Sigma 2014 World Insurance Report by Swiss Re revealed that Europe generated $1.69bn premium, about 35.53 per cent share of the world insurance market and contributed 6.83 per cent to its GDP. America generated $1.59bn premium, which was about 33.33 per cent of the world insurance premium and contributed 6.29 per cent to the GDP. Asia earned $1.31bn premium in 2014 or about 27.57 per cent share of the global market and contributed 5.21 per cent of the GDP. Oceania generated $100.14m premium in 2014 or 2.10 per cent of the world total, with a contribution of 5.92 per cent to GDP. Africa, which is the lowest, earned about $68.97m, which translates to 1.44 per cent share of the world insurance market, with the industry contributing about 2.79 per cent to the continent’s GDP.
The Managing Director, Riskguard-Africa Nigeria Limited, Mr. Yemi Soladoye, observes that the contribution of Africa to the world insurance market is the smallest among the continents in the Sigma publication. “Insurance is an international business and can serve as a foreign exchange earner if properly developed. Reinsurance operates in foreign, insurance operates in local,” he says.
According to him, the major problems affecting local underwriters in Africa also affect their reinsurer counterparts because the capacity is not strong enough to carry the majority of large and special risks on the continent. This, he notes, is making them to reinsure a lot of business outside the continent. He emphasises the need to increase the financial and technical capacity of local underwriters in order to increase their retention ability.
Soladoye points out that if almost all the insurance covers are reinsured outside Africa, it will be a big loss to the continent.
Some decades ago, only very few African reinsurance firms were in existence, while foreign companies dominated the continent’s reinsurance business. Over the years, efforts have been made to create new firms and boost their capacity on the continent in order to curb capital flight and boost the sector’s contribution to the respective African countries’ GDP.
For instance, in 1976, the Africa Reinsurance Corporation was formed following a recommendation of the African Development Bank. This was after an international agreement was signed by 36 member states of the Organisation of African Unity and the AfDB, with the aim of reducing the outflow of foreign exchange from the continent by retaining a substantial proportion of the reinsurance premiums generated therein.
Another effort was the inauguration of the WAICA Reinsurance Corporation Plc in 2011. Following the creation of the West African Insurance Companies Association in 1973, the founding fathers craved to establish a reinsurance organisation to help mitigate the effects of lack of reinsurance capacity within the West African insurance industry. The founding fathers created a reinsurance pool, which later metamorphosed into a fully-fledged reinsurance corporation.
The CICA-Reinsurance Corporation was established in 1981 by the member states of the International Conference of Insurance Supervisors, which later became the African Conference for Insurance Market after a new agreement was signed in 1992. It started operations in 1984 with the mission to foster the increase of national, sub-regional and regional underwriting and retention capacity, mostly in Francophone countries on the continent and Africa in general.
While many reinsurance firms have been coming up over the years, they have been grappling with capacity problems even as they are placed at a disadvantaged position to compete with their foreign counterparts.