Where do African businesses turn to for traditional risk coverage? Are they big captive users, and why?
The majority of African businesses use local markets for their risk coverage, which in turn reinsure significant portions of the risk in the international markets. This has traditionally been the approach for the vast majority of African businesses.
Although there are a number of African businesses with captives, the ratio of captives owned by African businesses is generally much lower than global averages. In many cases, the African businesses that do have captives, also have material levels of risk outside the continent, which helps drive the captive agenda.
There are a number of reasons for this. In some jurisdictions, local regulations that require risk to be placed and reinsured locally means that it can be difficult to export material levels of risk outside the country, and therefore diminishes the feasibility of captive strategies. In addition to this, there has historically been a perception that African risk management practices for not being as mature as their European and US counterparts, which did not lend themselves to more sophisticated strategies such as captive utilisation.
However, there are encouraging signs to suggest that captives will be much more common across the continent in the coming years.
Many African insurance regulators are now moving to adopt International Association of Insurance Supervisors (IAIS) guidelines, facilitating a more global approach to insurance markets.
With a maturing approach to risk management prevalent across the continent, more and more focus is now being placed on alternative approaches such as captive insurance.
There is also a growing appetite for African organisations to implement international best practices in risk management, including more sophisticated and evolved strategies, and captive utilisation is very much central to this.
Adding these factors to the further development of Mauritius as a captive domicile and the levels of economic growth and development predicted for the continent, the potential for African captive usage in the short term is enormous.
Willis Towers Watson is already actively assisting a number of African businesses with captive investigations and development and this is a trend we expect to increase in the coming months and years.
What about foreign businesses with risk needs in Africa? Does the continent present any unusual or difficult-to-place risks that require an alternative risk transfer solution?
A challenge for many foreign businesses with risks in Africa is the local regulatory environment. In certain African jurisdictions, insurance is required to be placed locally and movement of premium or claims funds can be fraught with difficulty due to local withholding requirements.
This can prove challenging to those multinationals who aim to have streamlined and centrally controlled global programmes.
Political and terrorism risks in certain parts of Africa can also introduce a different risk profile for some organisations, which in some cases can be difficult to secure adequate or appropriate coverage for locally.
However, notwithstanding this, the general risk profile across the continent is converging with more mature economies and the depth and quality of coverage available is ever improving.
In terms of reinsurance, does Willis Towers Watson see significant demand in Africa? If so, from which sectors and for what kinds of risks?
Yes, there is significant demand for reinsurance in Africa. This demand for reinsurance is increasing because of the growing terrorism risks, investments in oil and gas and mega social infrastructure projects underway across many parts of the continent.
Local reinsurance markets cannot keep pace with the economic development across the continent, resulting in insufficient capacity for larger risks, which in turn retrocede the larger or more complex risks to the international markets.
The South African market is able to retain higher levels of risks than the other African markets: today South Africa still represents about 90 percent of the insurance premiums collected in Africa as a whole.
What is the investment landscape like in Africa?
The current investment trends vary from one country to another based on their economic dynamics. There has been significant reduction in foreign direct investments in regions reliant on commodities due to falling prices.
The collateral effects of this situation strongly impact secondary support services resulting in reduced economic growth in certain African countries.
By contrast, African countries whose national economies are more diversified and focussed on sustainability continue to attract investment and have some of the highest forecast gross domestic product growth globally.
In an era of depressed investment returns globally, there is renewed interest in parts of the continent as new and attractive investment opportunities emerge, for example, in areas of infrastructure including roads, seaports, railways, power generation and airports, where public-private partnerships are encouraged.
In order to achieve increased yields, some of the larger global banks and insurers have begun exploring such investment options. There are also investment opportunities in the retail sector—manufacturing and distribution of consumer goods such as food, cars and pharmaceuticals—to supply the needs of the new rising African middle-class.
These trends are resulting in a more buoyant investment landscape generally across certain parts of the continent.