Steinmetz Karsten, Chief Financial Officer, Munich Re of Africa
Operating as a reinsurer in Sub-Saharan Africa is not for the faint-hearted. Following recent disastrous claim events in the region, challenges for reinsurers have increased sharply despite a recovering and hardening market.
However, the recent past has shown the critical role that reinsurers fulfill in a functioning financial services industry, and ultimately society.
The reinsurance industry’s skills in risk modelling, data analytics and digitalisation are invaluable in building, with its clients, the risk protection solutions required for sustainable socio-economic development.
The past two years have been tough, globally and in Africa. Natural disasters, the pandemic and their aftermath have taken their toll on people, businesses and all other parts of society. And global reinsurers have had to contend with mounting claims resulting from natural catastrophes and pandemic events. The impact of Covid-19 has affected the industry globally and across its various disciplines, including health, life and non-life insurance. On the non-life side, insurers and reinsurers have paid billions of dollars in claims for contingent or non-physical damage business interruption covers. And on the health and life insurance side, we have seen significant claims activity across cover types, most notably for death-related claims.
The Association for Savings and Investment South Africa1 recently confirmed more than a million death claims were submitted to local life insurers between 1 April 2020 and 31 March 2021, resulting in pay-outs of around R47 billion. It is impossible to accurately measure the influence of Covid-19 in these statistics, but we can identify an increase of 300000 in the number of deaths and a 64% rise in total claims compared to the preceding 12-months. On the non-life side, Santam, South Africa’s largest non-life insurer, reported in August that it had paid more than R2.1 billion for contingent business interruption claims.
Reinsurers with exposure to South Africa’s special risks insurance market suffered an additional setback, with widespread civil commotion ripping through parts of Gauteng and KwaZulu-Natal during July. Special risks insurer, Sasria SOC Limited, has reinsurance treaties with most of the major reinsurance brands active here. The total extent of the insured and reinsured losses is not yet clear, but estimates point to a total claims cost of more than ZAR30 billion.
Reinsurers will face numerous challenges going into 2022, not least of which the impact of long-Covid on mortality and morbidity experiences. We must also navigate the ongoing risks posed by climate change and the weather-related natural catastrophes influenced by it, not to mention surging cybercrime. Much thought is presently being given to how insurers can work with governments to create suitable risk mitigation and risk transfer mechanisms for systemic risks. We are also more aware of the challenge in providing cover for such risks given the ongoing increase in frequency and severity of drought, flood, storms and wildfires, to name a few. Future pandemics cannot be addressed without reinventing our insurance and reinsurance solutions and risk pools.
The United Nations Climate Change Conference, COP26, which took place in Glasgow, Scotland, has refocused the world on the risks posed by climate change and highlighted the need for insurance market mechanisms to foster climate-related innovation and technology. It is worth noting that the impacts of climate change will be most pronounced in poorer countries, with the establishment of public-private partnerships to reduce the insurance gap becoming more important than ever.
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The reinsurance industry will play an elementary role in developing solutions to provide sufficient risk-bearing capacity for emerging markets. Adequate capacity will be non-negotiable as developed economies seek to spend up to US$100 billion per year in Africa, in search of renewable energy projects to help meet the tough net-zero carbon emissions promises for 2050.
Over the near term, those players plying their trade in Sub-Saharan Africa can look forward to increased reinsurance demand alongside a continued hardening of markets; but profit cannot be taken for granted. Reinsurers face underwriting challenges from emerging and evolving risks in the areas of cyber, natural catastrophe and pandemics; we face wording challenges in making sure lessons learned from the pandemic are reflected in our contractual agreements, and we face operational challenges in meeting the tough accounting standards being introduced under IFRS17 from 2023.
The economic environment presents challenges too. For example, we are aware of claim cost pressures resulting from rising inflation. Insurers and reinsurers are also experiencing difficulties in maintaining the necessary share of income from investing activities due to the ongoing low interest rate environment. The future is not going to be won by the timid; it demands confidence, a firm conviction in capabilities and a clear view of the facts.
Extensive local know-how and long-term commitments to the continent continue to stand out in the posture of those players who aim to be successful in this dynamic risk environment in Sub-Saharan Africa.