Opportunities for marine underwriters in Southern Africa

The ocean is vital to the livelihoods of Africans. Whether subsistence fishermen or commercial fishing enterprises, importers or exporters, it plays a critical role in Africans' access to food, trade and income. This presents opportunities for marine underwriters that are prepared to invest in the continent and specifically, the Southern African region.

Marine trade in Africa

While a third of African countries are landlocked, maritime transit remains the largest access point to the global marketplace for the continent, and Africa's international trade relies heavily on shipping and ports.

Africa accounts for a rather small share of the world's merchandise trade by value - approximately 2% of exports and 3% of imports (2020). In terms of volumes of globalised marine trade (as at 2019), it is estimated that African ports export approximately 7% of world marine trade and import approximately 4.6% of global trade.

Marine trade in Africa continues to be shaped by the continent's trade concentration and limited diversification. Accordingly, about half of the goods exported by sea in 2019 comprised tanker trade, while over two thirds of imports consisted of dry cargo (dry bulks and containerised goods).

By region, North Africa was the biggest maritime trader in 2019 (36%) followed by West Africa (27%), Central Africa (13%), Southern African (18%) and East Africa (6%).

It's against this backdrop that we can consider where the greatest potential opportunities may exist for marine underwriters in the Southern African region.

Mauritius

Mauritius is well-known for its port services between various continents, particularly Africa and the Indian sub-continent. As an island, the country is highly focused on tourism and its financial sectors, with less emphasis on self-sufficiency. As a result, imports constitute an essential part of its economic activities, with marine cargo being the most important aspect of the market.

Imports have been further boosted since 2018 by construction activity on projects such as the Metro Express and other government projects requiring materials and equipment.

There is no requirement to insure either exports or imports locally. The transport business generates approximately US$12.5m (R190m) in premium, which was expected to decline from around 2019/2020 due to Covid-19.

Reinsurance spend is about 58% and retention 42%, with a loss ratio of around 40% in the marine space. The most common vessels in Mauritian waters are passenger and cargo vessels, and the biggest hazard to them, seasonal cyclones. Cargo treaties are predominately placed into the London market, however there is often a need for additional capacity that clients then look to place into the facultative market.

There is also a need for more specialised cover, like stock throughput, freight forwarders, warehouse liability, terminal operator and ship repairers' liability in Mauritius. Reinsurance brokers could look at developing off-the-shelf or bespoke solutions.

Angola

In its 2018-2022 national plan for development, the Angolan government identified the fishing industry as a key development sector to diversify the economy, which has been largely dependent on oil and minerals.

The government, supported by the African Development Bank and the United Nations, has earmarked funding for artisanal fishermen in the Benguela and Luanda provinces to enable them to acquire fishing vessels at preferable lending rates. This has sparked an increase in requests for cover for fishing vessels from the Angolan market.

The marine, aviation and transit (MAT) sector has an estimated premium income of USD72.3m (R1 bn). The bulk of these premiums are in relation to insurance of the petrochemical sector and cargo insurance. The estimated loss ratio is estimated at around 15% for marine cargo.

There are few hazards to the Angolan marine sector, save for the occasional storm. Most hull business written in country, other than small crafts, is placed into the international facultative market.

Market capacity is limited, as there are no marine treaties in place. As a result, rates for any but the smallest of risks are driven by the requirements of the facultative reinsurers.

Zambia

Zambia is a landlocked country, with its marine income being confined to pleasure crafts located on Lake Kariba, Lake Tanganyika and the Zambezi River.

One of the biggest causes of loss or damage to these crafts is the prevalence of submerged tree stumps in lakes and rivers, especially Kariba, when good rains heighten water levels. Small boats are also vulnerable to occasional violent storms that occur on the larger lakes. Reinsurance requirements are predominantly satisfied on a facultative basis.

Zambia is renowned for its copper mines. A large amount of its exported copper goes via South Africa by road using third-party road haulers, not via marine channels. Consequently, principals requiring contractors/haulers to have insurance is steadily increasing.

Mozambique

The premium income is relatively small in Mozambique, estimated at less than USD6m (R90m), however it is a growing market. Capacity should be placed locally but is not, and is often insured out of country, with an estimated loss ratio of around 20%.

Mozambique has experienced substantial economic growth due to its burgeoning oil and gas sectors. This positive growth is being overshadowed by ongoing terrorist attacks in northern Mozambique, prompting increases in requests for war, political violence and terrorism risks, which are ordinarily excluded for inland transit covers.

The international marine cargo markets are apprehensive, and have not been able to respond to the demand. As a consequence, specialist political violence markets have been providing this cover, forcing clients to buy separate covers - one direct from the marine cargo underwriters (excluding political violence) and another from the political violence underwriters (excluding transit risks).

Whether or not cargo underwriters would be willing to cover political violence risks for inland transit, remains to be seen.

There is no doubt, there are opportunities for marine underwriters in the region. However, these must be viewed against potential threats as well; piracy, smuggling, trafficking, and steadily advancing criminal innovations that target shipping vessels all pose threats to Africa's maritime sector.

In addition to these longstanding dangers are continuing efforts - both lawful and clandestine - to exploit the continent's ocean resources, as foreign powers clamber to get a piece of the pie in what has been dubbed the new scramble for Africa.

For the re/insurers prepared to take it on, the reward might just be worth the risk.