Southern African facultative reinsurance: a golden opportunity for SA insurers

The South African insurance market is all but saturated. Picking up new local business that steadily grows your books is difficult, and offers small wins at best. Naturally, South African insurers are looking for other ways to expand their businesses.

The broader Southern African insurance sector represents an underexplored market, with significant opportunities for local insurers that are prepared to leave the comfort zone of the SA market and seek growth beyond our borders.

Africa's lucrative insurance prospects

In his post, Capturing Africa's insurance potential for shared prosperity, on the blog of non-profit public policy organisation, The Brookings Institution, Senior Fellow Landry Signé describes Africa's insurance market as 'lucrative'.

He notes that, despite the obvious advantages of a burgeoning insurance sector, especially from the perspective of spurring growth and development in African countries, insurance penetration remains low.

"Africa's aggregate insurance penetration rate in 2019 was only 2.78%, compared to the global average insurance penetration rate of 7.23%. With increased entry, participation, and expansion from traditional insurance companies and new microinsurance companies (as well as reinsurance companies), the potential for growth across the continent is immense.

Recent disruptive events-including an increasing number of natural disasters, political upheavals, and economic disruptions from current and future pandemics-will continue to increase demand and foster rapid growth throughout this sector, particularly of digital insurance platforms," he writes.

This points to the untapped potential that exists for both insurers and reinsurers on the continent. This scenario is further underscored by the fact that a mere five countries house around 84% of an estimated $68.15 billion total value of the continent's insurance market.

South Africa leads the charge with around 70% of the total market share, followed by Morocco, Kenya, Egypt and Nigeria. Signé says in most other African markets, the penetration rate remains below 2%.

Balancing risk and reward

It's not hard to see the opportunities for SA insurers looking to Southern Africa for growth prospects. However, as with any organisation considering moving into foreign territory, the risk of taking on new business in countries like Zimbabwe, Angola, Zambia, Malawi or Mozambique might seem to outweigh the reward.

This is where facultative inward reinsurance provides a solution. In this case it would involve a direct insurer in South Africa writing foreign business by taking on the risk from a foreign domiciled insurance company. To do this, it's recommended that the insurer works through a trusted reinsurance broker who has extensive knowledge of the Southern African market to secure the business.

There are several benefits to facultative inwards reinsurance. The most obvious is that insurers don't need offices in those countries where they are looking to expand - they can still assume the risk without a physical presence in that country.

Working through a reinsurance broker with an established footprint in Southern Africa provides a measure of security at every step along the way. Such brokers have much-needed relationships with clients on the ground. They also have an excellent understanding of the players in the various markets, as well as the available opportunities and prevailing risks.

Those opportunities might include emerging risks, where there are no existing local underwriting capabilities or capacity. An example would be the urgent need for broadform liability covers in Mozambique.

This is just one of the many examples where an insurer in South Africa could assist with their expertise and capacity to write foreign business on a facultative inwards basis and as a result, provide a solution to the respective local market.

With the current hardening of the global reinsurance market, some European and global reinsurance capacity providers are reducing capacity for Africa. Now is the time for South African insurers to come in and fill the void that has been left.

A trusted reinsurance partner

It's clear, facultative inwards reinsurance provides South African insurers with solid prospects to expand into new territories and grow their lines of business, their footprint and therefore their revenue.

Reinsurance Solutions Intermediary Services (RSIS) is a trusted partner for insurers wanting to explore Southern African business opportunities. Being part of the Reinsurance Solutions Group, the largest independent African-owned reinsurance broking group on the continent, the Reinsurance Solutions brand has a wider footprint across the continent.

As an Afrocentric broker, RSIS firmly believes solutions for the African insurance market should come from the continent itself. Backed by years of local and international experience, and servicing blue-chip insurance clients in South Africa, Angola, Botswana, Lesotho, Mozambique, Namibia, eSwatini (Swaziland), Zambia and Zimbabwe, RSIS is perfectly poised to do just that, and facilitate facultative reinsurance business in the region.

Its extensive on-the-ground experience across Southern Africa puts it at the frontline of regional insurance markets, empowering it with in-depth knowledge and understanding of these various sectors to enable clients to make informed reinsurance decisions.