Southern African reinsurance trend forecast for 2025

The year has got off to a busy start for Southern African reinsurers.

Cyclones in December and January caused fatalities, casualties and extensive damage in Mozambique and Madagascar; political violence in Mozambique left hundreds dead; and severe flooding affected South Africa and Botswana.

While political violence and terrorism remain constant perils on the continent, climate-related risk is expected to increase in the year ahead.

Increased demand for extreme weather reinsurance

Typically such events in Southern Africa include droughts, flooding and cyclones, but going forward reinsurers could begin to see a greater demand for cover for less frequent weather events, such as tornadoes.

Nomhle Ngwenya, an independent climate change and weather events expert, was recently quoted in the media as saying that in South Africa in January 2025 alone, three tornadoes were recorded. This followed two tornadoes that were recorded in November 2024.

Weather pattern data from 2014/5 compared to 2024/5 showed that extreme weather disasters had become more frequent and intense, Ngwenya said that more frequent extreme events were expected to occur in future.

We anticipate higher reinsurance demand for these extreme weather events this year, with reinsurers exploring parametric insurance solutions to provide faster payouts for weather-related claims.

Growth in parametric insurance 

This brings us to our second trend for 2025: a projected growth in demand for parametric insurance, also called event or index-based insurance.

Parametric insurance is an agreement by the re/insurer to pay out should a predefined event (the 'trigger') occur. It doesn't indemnify actual losses incurred but rather uses an index (a simple measure or parameter) that correlates with the insured's financial loss. Payouts can be relative to the extent of the triggering event.

This fast-growing alternative to traditional indemnity-based reinsurance provides immediate payouts following the occurrence of the predetermined event, regardless of any actual losses incurred. There are no claims or loss adjustment processes.

Parametric insurance helps to address agricultural risks, natural disasters and infrastructure resilience - all prevalent in the African context.

Growing need for cyber risk coverage

African businesses are facing increasing cyber threats, with AI and machine learning expected to  expose organisations to entirely new cyberthreats.

The biggest challenge for businesses will be maintaining pace with the development of malware and sophisticated AI-driven phishing attacks in areas where digital transformation is evolving quicker than cybersecurity investments.

So-called deepfake technology and automated social engineering will continue to raise the stakes in 2025, forcing reinsurers to provide comprehensive cyber cover to all their clients, not just high-risk businesses.

It's anticipated that demand for cyber reinsurance will skyrocket in the year ahead.

Digital transformation and the rise of insurtech

New technologies may be furthering certain insurance risks, but they're also disrupting and reshaping the re/insurance landscape.

Innovative technology such as blockchain, data analytics and AI are all improving insurance risk assessment and claims management. Specifically, insurtech allows for more effective product pricing, underwriting, contract and claims processing, and risk evaluation.

Grand View Research estimated the total Insurtech industry was valued at US$5.4 billion in 2022 - a number expected to hit US$152 billion in 2030. 

There's no doubt that the influence of insurtech on the African reinsurance sector will continue to grow in 2025, as brokers and reinsurers begin to maximise these new tools for enhanced efficiencies.

Sustained growth for African reinsurance

The reinsurance sector in Africa is projected to continue its upward spiral in 2025, as local reinsurers capitalise on the hardening of the global reinsurance industry, and seek to retain more risk locally.

The latter is especially true in the case of extreme weather events and the impact of drought and flooding on agricultural sectors as well as the increase in cybersecurity threat.

New lines of business and new geographies present additional opportunities for African reinsurers, along with anticipated growth in facultative reinsurance cover. 

There is scope for significant growth in the African reinsurance sector, and we expect to see progress in this regard during 2025.