Sub-Saharan Africa reinsurers resilient amid challenging risk environment: AM Best

Several factors, including high commodity prices, volatile inflation, and deteriorating macroeconomic conditions, have challenged the financial strength of sub-Saharan Africa (SSA) reinsurers; however, AM Best highlights their resilience and sustained profitability despite these pressures.

In a recent report, AM Best analysts underscore the tough economic environment across SSA. Inflationary pressures, worsened by the Russia-Ukraine conflict and COVID-19-related supply chain disruptions, has led to higher global interest rates, increasing the debt burden for many African countries. This has strained the creditworthiness of African debt issuers, raising asset risks for reinsurers in the region.

SSA reinsurers typically operate within a limited number of countries and hold assets domestically to align with liabilities and meet regulatory requirements. This limited geographical reach makes them vulnerable to sudden shifts in their operating environment.

However, there are signs of improvement. According to the International Monetary Fund (IMF), tighter monetary policies have reduced median inflation in the region from nearly 10% in November 2022 to 6% by February 2024. Real GDP growth is also expected to recover in 2024, potentially easing pressure on SSA countries’ external finances.

Despite these challenges, SSA reinsurers have capitalised on the global hardening rate environment, maintaining strong underwriting profitability.

Looking ahead, AM Best sees significant potential for the SSA reinsurance market. The region’s abundant natural resources, long-term economic growth prospects, and rising insurance penetration position it well for continued growth and profitability.

Dale Kirby, financial analyst, analytics at AM Best, noted, “The creditworthiness of many African debt issuers remains under pressure, which is driving heightened levels of asset risk and is continuing to test the balance sheets of sub-Saharan Africa’s reinsurers.”

“On the whole, AM Best-rated reinsurers in the region have demonstrated a level of resilience amid these challenging conditions, particularly those that have successfully mitigated risks through diversification and proactive risk management,” Kirby concluded.

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