Low capitalisation, influx of foreign investors may largely affect African insurers’ hold on oil and gas premium in the nearest future. This projection, which formed part of the inference arrived at during the West Africa Insurance Companies Association conference in Lagos, was highlighted by Dr Abiba Zakariah of Ghana Reinsurance Company.
Low capacity
According to him, Africa’s low capitalisation in a rising continent means local insurance companies do not have the capacity to retain most of the risk they write and have to transfer most of their premiums outside. “In Africa, this represents about 90 per cent of oil and gas insurance premium.
Furthermore, some international investors, even where there is local capacity, would insist on insuring their risk out of Africa. “Africa rising has meant that an increasing number of foreign insurance companies are entering Africa’s insurance markets offering very little capacity development, while local insurers do not have the financial capacity to compete with these international competitors,” he said.
Global ratings
Today, the world’s insurance industry is dominated by wealthy developed countries, with premium income of $1.62 trillion. The Group of Seven (G7) alone accounts for almost 65 per cent of the world’s insurance premiums even though they cover just over 10 per cent of the world’s population.
The United States and Japan alone account for 40 per cent of world insurance, much higher than their seven per cent share of the global population during the same period. According to Swiss Re, the total value of Africa’s insurance premiums was about $70 billion in 2013.
That is 1.5 per cent of the global market premium. Of this, South Africa accounted for nearly 74 per cent ($51.6 billion), with the other 53 countries contributing $18.3 billion, only 0.4 per cent of the global insurance market premium.
Whereas life insurance represents 55.3 per cent of the global insurance market premiums, it represents 29.5 per cent of South Saharan Africa (SSA) insurance premium, although it contributes 88.6 per cent in South Africa. SSA’s insurance penetration rate was 0.27 per cent, accounting for only 29.5 per cent of total African insurance premiums in 2013, with a density of $5 per person. Non-life insurance had a penetration rate of 0.64 per cent, with SSA spending an average of $12.5 on non-life insurance products in 2013. Apart from Nigeria, the contribution of other West African countries to Africa’s premium income is virtually negligible.
Reinsurance treaty
Zakariah further noted that regulators in a number of African counties were insisting that insurance companies deal with reinsurance companies with certain rating, adding that such decision reflected the fact that although a good rating showed the ability of a company to pay claims, it is not an indication of their wiliness to do so. He also hinted that most African reinsurers were automatically pushed out of the competition because their ratings are linked to their countries’ sovereign rating, which are lower.
He said that African companies were not gaining business from these foreign rated companies, and as a result do not add on to Africa’s growth. “Insured are becoming more sophisticated, demanding more innovative products and better services,” he added.
Sino-Africa trade
On the current business imbalance between China and Africa, Zakariah pointed out that although Africa would benefit from Chinese-built infrastructure in the short term, it all amounts to currently mortgaging its future resources to do so as it may turn out to be a costly trade.
He said Sino-African trade was not accompanied by significant skills development, technology transfer or productivity improvements in Africa. “China announced plans to remove tariffs on 97% of items from 30 least developed African countries, and pledged to train 30,000 workers, provide 18,000 scholarships, link African products to global supply chains, improve the variety of imports and the quality of exports but all these promises remain largely rhetorical.
“The importation of cheap Chinese products, such as electronics, clothes, and cars to Africa, is a key outlet for China’s low quality overproduced goods. However China does not purchase manufactured products from Africa, while the cheap Chinese imports flood the local marketplace, making it difficult for local industries to compete.
“A noticeable case is the Chinese textile industry, which is crippling the African textile industry as well as raising opposition and concern over the loss of local jobs. It has caused 80 per cent of Nigerian textile factories to shut down, resulting in loss for about 250,000 workers. Basic African factories cannot compete with the Chinese in terms of productivity or quality.
“African fishermen complain of Chinese industrialised fishing depleting fish stocks, and interfering with villagers’ fishing nets for whom fishing is the main income source. Competition from Chinese imports may have cost South Africa 78,000 industrial jobs between 2001 and 2010,” he said.
