OVERVIEW OF GLOBAL TRENDS IN REINSURANCE:

Transcription

1 OVERVIEW OF GLOBAL TRENDS IN REINSURANCE: AFRICA RE PERSPECTIVE Presented by: Mr. Corneille Karekezi GMD/CEO (Africa Re)

2 OVERVIEW Global Economic Growth African Economic Growth Global Reinsurance Market African Reinsurance Market / Industry Currents Trends in Africa Conclusions: Global Trends, Future, Way Forward 2

3 GLOBAL ECONOMY The global economy grew by 3.85% in Advanced economies to marginally grow for next 5 years. Africa and other emerging regions are and will be the drivers of the global economy. Interest rates consistently falling from 14% in 1990 to less than 2% in 2011 in Europe / America and 6% - 8% in Africa. 3

4 GLOBAL ECONOMY AFRICA: ONE OF THE FASTEST GROWING ECONOMIES DRIVERS OF GLOBAL ECONOMY: SSA, EDE... BRICS REGION Gross Domestic Product (Percentage change) Sub-Saharan Africa Emerging and developing economies Advanced economies Euro area World May be the best scenario at the moment! Is the World Going Mad? 4

5 AFRICAN ECONOMY TRADE Output doubled between Inflation dropped from 22% in the 1990 s to 8% in past decade. POPULATION Fast growing and young In 2030: 2 bn people, 1.2 bn living in cities, rising middle class (300 Million) earning > US$ 20 per day, leading to yearly consumer spending of US$2.2 Trillion. SERVICES Today: 600 million mobile phone users, 10% have access to mobile internet services. Financial Services : US$107 bn and still expanding. POLITICAL STABILITY More and more democratic countries: 2/3 have regular elections Foreign Direct Investment US$ 55 bn (2000: US$9.08 bn). 5

6 AFRICAN ECONOMY FASTEST GROWING ECONOMIES IN AFRICA 6

7 AFRICAN ECONOMY NORTH AFRICA: Hampered by Arab Spring 7

8 GLOBAL REINSURANCE MARKET GLOBAL NATURE Ability to spread risks across territories Low cycle and heavy losses in major markets impact on cost elsewhere Europe dominates international Market HIGHLIGHTS OF MARKET Modest rate rises in selected markets. Low investment yields. Premium Income (2011): Life: US$56 bn, Non Life: US$150.6 bn. Reinsurance Cessions as % of Insurance Income (2010): Life : 2.2%, Non Life: 6.0% Excess industry-wide Capital despite heavy CAT losses in Top 10 Reinsurers in 2011: 59% of global market 8

9 AFRICAN REINSURANCE MARKET REASONS FOR THE CREATION OF AN ALTERNATIVE MARKET Dissatisfied customers Desire to address unfulfilled needs by creating an alternative market. Perceived one sided partnership - cost seemed not to reflect the underlying risks. Competition The States and Local entrepreneurs identifying and seizing growing opportunities in the sector (emergence of regional reinsurers). Democratization, liberalization and globalisation of economies introduced dynamism, more opportunities, confidence and access to capital. Development Sustainable economic development requires empowerment of local players and retention of premium on the continent. 9

10 AFRICAN REINSURANCE MARKET BEGINNING & CURRENT STATUS 1 st African Reinsurer: Egypt Re (1957) 1 st Privately owned Reinsurer: Best Re (1985) in Tunisia. 1 st Continental Reinsurer: Africa Re (1976) Today: 36 Reinsurers based in Africa 15 privately owned 4 regional / sub-regional 5 South African based (Munich Re, Hannover Re, Scor Re, Gen Re and Swiss Re Life & Health). 10 State owned & 2 Private / State owned 10

11 AFRICAN REINSURANCE MARKET EVOLUTION... SLOW OR PRUDENT? AFRICA RE, commenced operations in 1978 as a continental reinsurer with 36 States and the AfDB as pioneering shareholders. Sub-regional reinsurers: CICA RE (1982), ZEP RE (1990) and WAICA RE (2011) to support sub-regional growth. Compared to Brazil (market size comparable to South Africa: 5 Reinsurers) Deregulated in reinsurers in 2010: Local (8), Admitted (29) & Occasional (56) 11

12 AFRICAN REINSURANCE MARKET HIGHLIGHTS & FEATURES Income growth of insurance/reinsurance markets ( ) Direct market: Life (9.0%), Non Life (12.6%) Reinsurance market: Life (6.4%), Non Life (6.5%) Reinsurers Net Combined Ratios: 92.9% (2010) & 93.6% (2011) Retrocessionaires (of domiciled reinsurers) Net Combined Ratio: 94.6% (2010) & 93.5% (2011). Rising Domiciled Reinsurers Shareholders Funds (2007: US$1.57 bn; 2011: US$2.15 bn) Vs Premium Income (US$7.5 bn). Capacities & experience of foreign based players still needed. ERM to fully understand portfolio & capacity to deploy at infancy stage. 12

13 AFRICAN REINSURANCE MARKET HIGHLIGHTS & FEATURES... Market Cessions : 90% proportional. Sustained soft market with high commission rates. Investment yields: Higher returns, riskier than mature markets Life Premium income US$836 million (2010) Non Life Premium income US$5.4 billion (2010) Largest Life market: South Africa (78.6%) Largest Non-Life markets (2010 share: 72.7%): S/Africa, Angola, Egypt, Algeria, Nigeria & Morocco Reinsurance Cessions as % of Insurance Income ( ) Life : 1.4%-2.2% (Global 2010: 2.2%) Non Life: 26.5%-33.3% (Global 2010: 6.0%) 13

14 AFRICAN REINSURANCE INDUSTRY MARKET SHARE OF DOMICILED REINSURERS Non Life US$ 2010 Locally Owned Reinsurers 1,533,478, % Foreign Owned (South African based) 846,561, % Foreign Based Reinsurers 3,394,187, % Total 5,774,227, % Life US$ 2010 Locally Owned Reinsurers 20,452, % Foreign Owned (South African based) 902,077, % Foreign Based Reinsurers 73,786, % Total 996,316, % 14

15 AFRICAN REINSURANCE INDUSTRY Net Technical Margin of African Based Reinsurers (US$ bn) 0 Technical Margin: US$ 95 m or 6.8% (2010) / US$ 91 m or 7.8% Incurred Loss Expenses Margin 15

16 AFRICAN REINSURANCE INDUSTRY FACTORS AIDING PROFITABILITY The low occurrence of insured catastrophe events in the continent. Comparatively, relative unsophisticated portfolios of the African reinsurers Limited capacity for large hazardous risks, leading to greater reliance on retrocession Prudent underwriting Avoidance of non-african business Diversified markets / different market cycles 16

17 AFRICAN REINSURANCE INDUSTRY Investment Margin (%): Domiciled Vs Global Big 4 Reinsurers 17

18 AFRICAN REINSURANCE INDUSTRY % Insurance Income Ceded in Life Business 3.00% 2.60% Global 2010: 2.2 % 2.20% 1.80% 1.40% 1.00%

19 AFRICAN REINSURANCE INDUSTRY 35.00% % Insurance Income Ceded in Non-Life Business 33.00% Global 2010: 6.0 % 31.00% 29.00% 27.00% 25.00%

20 AFRICAN REINSURANCE INDUSTRY 45.0% Average Non Life Reinsurance Ceded by African Insurers (%) ( ) High Cessions: Angola (Oil) & Mauritius 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Regions West Africa CIMA ZONE East Africa Southern Africa AIOI North Africa South Africa 20

21 AFRICAN REINSURANCE INDUSTRY MARKET REINSURANCE PREMIUM INCOME Vs EQUITY (SHF) (US $ million) West Africa CIMA Zone 21

22 AFRICAN REINSURANCE INDUSTRY MARKET REINSURANCE PREMIUM INCOME Vs EQUITY (SHF) (US $ million) East & Southern Africa North Africa 22

23 AFRICAN REINSURANCE INDUSTRY MARKET REINSURANCE PREMIUM INCOME Vs EQUITY (SHF) (million) 3, , , , , South Africa (US$) South Africa Reinsurance Premium in US$ Equity of domicied Reinsurers in US$ 20, , , , , , , , , , South Africa (ZAR) South Africa Reinsurance Premium in Rand Equity of domicied Reinsurers in Rand The gap between SHF of domiciled reinsurers and total S/African market income is quite high. After allowance is made for retro, the ratio of SHF/NWP is 1:3. The SHF is still inadequate to service the risks of this market. No wonder many reinsurers domiciled outside the continent are interested in entering the market. 23

24 AFRICAN REINSURANCE INDUSTRY MARKET REINSURANCE PREMIUM INCOME Vs EQUITY (SHF) (million) 6,000 5,500 5,000 4,500 4,000 3,500 3,000 Continent R/I Premium Continent Equity 2,500 2,000 1,500 1, The gap between SHF of domiciled reinsurers in the continent and total market reinsurance income is quite high. This shows most likely that reinsurers within the continent (apart from possibly West Africa) do not have enough capacity to satisfy the African insurance market. African CONTINENT 24

25 CURRENT TRENDS IN AFRICA REGULATORY INTERNAL PROCESS COMPETITION NEW PRODUCTS & EMERGING RISKS On going reforms in regulations. Move towards risk based regimes. SAM in South Africa Local Content Law -Energy class in Nigeria. Ghana to follow Domestication of risks/local contents law (Nigeria, Kenya) Strengthening of Enterprise Risk Management & Corporate Governance framework Recruitment of analytics staff and CROs to support modeling and pricing of risks Voluntary submission to independent international rating Introduction of Life underwriting tools Entrants of new players in the African Market Pressure on rate in some markets Fronting in some East African markets Micro insurance Takaful insurance Terrorism & Political insurance 25

26 CURRENT TRENDS IN AFRICA Locally Owned Reinsurers with more than one office African based reinsurer 2011 SHF US$ Million Head office in Africa Offices opened before 2010 Offices opened from 2010 Proposed new offices Africa Re Nigeria Mauritius, Kenya, Cote D'Ivoire, S/Africa- Subsidiary, Morocco, Egypt Retakaful subsidiary in Cairo, Ethiopia CICA Re (2010) Togo Cameroon Ghana Re Ghana Cameroon, Kenya Kenya Re Kenya Cote D'Ivoire East Africa Re Kenya Nigeria Zep Re Kenya Cameroon, Zambia Zimbabwe Continental Re Nigeria Cameroon Kenya Zim Re Holdings Zimbabwe Malawi, Zambia, Mozambique & Botswana Tunis Re Tunisia Cote D'Ivoire Aveni Re Cote D'Ivoire Tunisia/Ghana Munich Re of Africa (Group) South Africa Mauritius & Ghana 26

27 CURRENT TRENDS IN AFRICA List of RATED Reinsurers on the Continent Latest financial strength rating S&P AM Best GCR (International) Latest financial strength rating S&P AM Best GCR (International) Africa Re A- A- Zim Re Holdings B+ CICA Re BB+ Tunis Re B+ Ghana Re B BB+ Namib Re BB Kenya Re B+ BB+ Tan Re BB- East Africa Re B BB- Prima Re BBB+(Domestic) Zep Re B+ Swiss Re Life & Health Africa AA- A+ Misr B++ Scor A+ A SCR BBB B++ Hannover Re AA- A+ CCR B+ General Re AA+ A++ Continental Re B+ Munich Re of Africa A 27

28 CONCLUSION Global trends Africa is keenly watching Euro zone crises & proposed Solvency II regulations Africa s future economic growth Expected to grow as predicted Despite possible pockets of political / social / economic disruptions African reinsurance industry To continue providing capacity to the primary insurance market More markets are expected to domesticate Life/Accident classes as well as allow for greater participation of local players in the Oil & Energy class. Foreign reinsurers to continue lending capacity where peak risks exist, such as Energy business in Oil producing markets as well as the vast South African Life market. 28

29 CONCLUSION In conclusion, although many gains have been made the road ahead is still steep. Effectively deal with catastrophes through modelling software fit for Africa Maintain discipline and prudent underwriting in the face of increasing competition Further improve channels of communication amongst practitioners Address the problem of skills shortage / development 29

30 THANK YOU