The First African Insurance Barometer introduced by AIO

The African Insurance Organisation (AIO), has released its first Africa Insurance Barometer aimed at improving the transparency of the $69 billion insurance markets, Secretary General, African Insurance Organisation (AIO), Prisca Soares, has said.

She made this known while speaking at the presentation of the report at the just concluded AIO conference held in Marakech, Morocco.

The barometer, which is the outcome of a research effort, painted a comprehensive and quantitative picture of market sentiment, offers a summary of key regional insurance market data and highlighted key steps to advancing the region’s insurance markets.

According to the research, sub-saharan Africa is among the world’s fastest growing regions in 2015. It said: “Some 54 African countries, with a total population of nearly 1.2 billion are expected to have generated gross domestic product (GDP) of $2.2 trillion in 2015, about three per cent of the world’s total.

“With an estimated growth rate of 3.5 per cent in 2015, down from five per cent a year earlier, Sub-Saharan Africa will continue to be one of the world’s fastest growing regions in 2015. North Africa’s GDP is forecast to grow at a slower rate of 2.5 per cent, reflecting political instability, high fiscal deficits and the decline in oil prices.”

It further showed that lower oil prices are expected to reduce GDP growth for Sub-Saharan Africa’s oil exporting countries by an average of 0.75 percentage point.

“In Nigeria, Sub-Saharan Africa’s largest economy, GDP growth in 2016 is forecast to be 2.5 percentage points, lower than in 2015, forcing the government to cut capital spending and to adjust monetary and exchange rate policies, thus  depreciating by more than 25 per cent since October 2014) to relieve pressure on public finances.

“Unfortunately, “ the report stated, many of the 37 oil importing Sub-Saharan countries benefit only marginally from the low oil price. For an average country, where oil imports represent about 20 per cent of total imports and seven per cent of GDP, a sharp decline in oil prices certainly leads to substantial savings. However, many of these countries are highly dependent on the exports of other commodities such as palm oil, timber and metals, which have also seen substantial price reductions since 2014,” it said.

It remains to be seen, the report pointed out,  whether the decline in commodity prices will create an opportunity for countries to accelerate economic transformation and the greater integration of Sub-Saharan Africa into the global economy. It said while in the past trade has been a major engine for growth, its impact on labour productivity gains in Africa has been rather limited.

The document said excluding South Africa, African non-life insurance premiums accounted for $13.8 billion, or 71 per cent of total premium in 2014, clearly dominating the African insurance sector. Next to South Africa, but at a large distance is Morocco, Algeria, Nigeria, Kenya, Egypt and Angola, are the largest non-life markets, each reaching a size of more than $ 1 billion, the research indicated.

“With real premium compound annual growth rates of 8.9 per cent and 8.2 per cent, Algeria and Kenya were the fastest growing non-life markets. By contrast, the oil exporting countries of Angola and Nigeria saw premiums shrink by 2.6 per cent and 2.2 per cent respectively.

“Among smaller markets, the Republic of Congo, Malawi and Mozambique have experienced rapid growth in non-life premiums over the past five years. In many other African markets, including the relatively large (by African standards) markets of Namibia, Ghana and Cote d’Ivoire, non-life insurance premiums grew slower than GDP over the past five years.”

On the lines of business prospects, the report stated that over the next 12 months, life insurance, particularly individual annuity business, is expected to be the fastest growing line of business in Africa, mainly driven by the growth of a financially affluent middle class.

“Motor business ranks second, as growth is supported by compulsory requirements in most African markets. Backed by public and private investments, infrastructure, engineering business is predicted to be the third fastest growing line of business.

“In stark contrast to the fast growth of individual annuity business, Group Life insurance is mentioned most frequently as the slowest growing line of business. Marine cargo ranks second. In line with the global trend, where marine cargo capacity exceeds demand, African cargo insurance prices have come under pressure, leading to a slowdown of premium growth rates.

“Sluggish domestic demand and depressed sales in some major export markets further aggravate this trend. Property and liability insurance are mentioned third most frequently. While property business growth is mostly viewed as low because of fierce competition, the development of liability business suffers from low awareness and a degree of reluctance to pay for such cover.

“Motor insurance is fiercely competitive in most African markets, leading to low levels of profitability for insurers. Limited scope for risk selection in this compulsory line, and high claims inflation, are mentioned as the main drivers behind the poor results, making motor the most frequently mentioned least profitable line of business.

“Health and property insurance are also mentioned as business lines with low profitability, but to a much lesser degree. As shown earlier, views on property business are mixed: Large risks and business requiring specialist expertise are regarded as profitable, while highly commoditised business segments with easy access are seen as very competitive with low profitability,” the report stated.

Source: The Nation