African Reinsurance Sector: Weathering the Storm

EXCLUSIVE INTERVIEW with Mr. Corneille Karekezi, Group Managing Director/Chief Executive of African Reinsurance Corporation. He talks to Capital Markets in Africa about challenges and opportunities in African Insurance and Reinsurance markets.

How is the reinsurance sector coping with the current macroeconomic uncertainty, where currency volatility and the commodity slump coupled with terrorism and political instability have put pressure on economies in Africa?

CORNEILLE KAREKEZI: The recent slump in commodity prices coupled with the attending depreciation of most currencies in the continent has been a drag on the economies of promising African States. A number of infrastructural projects have been delayed, slowed/scaled down or abandoned. The loss in income would hamper commercial insurance. Furthermore, the depreciation of African currencies should make insurance claims more expensive due to the subsequent inflation in affected economies, hence pushing insurers to review upwards their prices. However, due to the intense competition in most African insurance markets, insurance rates are still falling while the growth in premium income in local currencies do not rise in tandem with the appreciation of the US dollar. The reducing premium rates have led to shifting reinsurance buying pattern of insurers in favour of greater retention with the hope of keeping internally some potential underwriting profit. Therefore bigger insurers are moving towards excess of loss covers as against proportional reinsurance programmes.

Given that Africa-Re operates in multiple jurisdictions, hence faces different regulators and supervisors, what is your view on regulatory provisions regarding cross-border activities of reinsurers in Africa and do you see a trend towards harmonizing certain insurance-related laws across various countries or regions in Africa?

CORNEILLE KAREKEZI: Most African insurance markets commenced the process of deregulating their insurance industries and aligning their regulatory frameworks with international standards, at the start of the new millennium. In essence, apart from Eritrea, Ethiopia and Democratic Republic of Congo, where talks on deregulation are ongoing, other markets have liberalised their markets and allow local private insurers and foreign insurers to operate within their borders. In the case of reinsurers, there is the need for them to write business across many countries to diversify their portfolios and be profitable.

A number of Insurance regulators in the continent insert certain safeguards as to the category of reinsurers that may operate within their borders. In the absence of such provisions, many local insurers insert minimum security ratings that reinsurers must meet. This is usually in the form of a minimum rating by A.M Best or Standard and Poor’s. For local reinsurers the minimum capital base have been significantly increased in most markets to enable them to be more competitive at home and abroad. However, the African domiciled reinsurers’ capitalisation remains averagely low (solvency ratio in 2015: 85%) compared to other parts of the world. This is the primary reason of their meagre share (35%) of the total African reinsurance premium income.

There are some markets in sub-Saharan Africa, where certain classes of business such as Life & Accident are retained within the country. Kenya, Nigeria & Ghana, and very recently the CIMA Zone (Central and West Francophone Markets) come readily to mind. Furthermore, Nigeria & Ghana have local content laws ensuring that the local market retains as much Oil & Gas risks as possible in line with aggregate local capacity. A number of prospective Oil & Gas markets are also thinking in this direction.

A school of thought believes emerging insurance markets in Africa should be protected by regulatory provisions from excessive foreign competition until a healthy and sustainable domestic insurance market has developed. What are your take on this and any impact on your company, please?

CORNEILLE KAREKEZI: In principle, reinsurance industry is by essence international as it fulfills the role of geographical risk diversification and spread. As discussed in the answer to the earlier question, where necessary risks are retained in the country as it is important that the domestic market is allowed to grow and be sustainable. This can only happen if the local market does not act as a post office but develops its technical underwriting skills and increase its underwriting capacity through higher capital. However, for large exposures such as insurances of dams, bridges, and other large infrastructure, where the local market lacks capacity, it is advisable to reinsure such portion as is found necessary with reputable foreign players. Finally, before retaining more risks in a market, regulators and public authorities should make sure, through tests, that they can bear large or systemic claims when they arise.

Disruptive social, technological, economic, environmental, political and regulatory changes are megatrends reshaping the competitive environment for insurers and the markets they operate. How are you leveraging the positive impacts and mitigating against negative influences of these megatrends, please?

CORNEILLE KAREKEZI: Any industry is reshaped over years by the trends in its environment and insurance is no different. To navigate the course of those trends, every industry player has to be strategic in its decisions and nimble in its strategic execution. Africa-Re scans regularly the environment and reviews frequently its strategy. For example, in recent years, a higher emphasis has been put on new technologies to prepare future required competences as digitalization will transform the industry and unleash new avenues for growth and operation. Also, focus has been put on the acquisition of new and emerging insurance products such as cyber risks and index-based insurance products. Finally, we can mention risk management culture, systems, and tools which have been revamped to match the international standards.

What is your estimate of the annual growth in premiums for your business for 2017 and over the next three years as well as how are you planning to achieve the target?

CORNEILLE KAREKEZI: It has become more difficult to predict the annual premium income growth in US dollars since the exchange rates of African currencies against the US dollar are very volatile. If they were stable, a growth rate of 10% is achievable. That is the underlying weighted average growth rate of our portfolio. In case major economies currencies continue to stumble against the UD dollar, it could be another story. Africa Re is planning to achieve its strategic targets by leveraging on its unique competences. These are competences and capabilities which are valuable, rare, non-imitable and able to capture value in core markets, such as a strong financial rating (A by A.M. Best), a strong capitalisation (28% of the total African reinsurers’ equity), superior technical expertise, proximity to markets and deep market knowledge.

Thank you very much for granting this interview.

This interview is featured in the May 2017 edition of INTO AFRICA Magazine, Africa’s Insurance Markets Uncovered.

Profile 
Mr. Corneille Karekezi was appointed the Group Managing Director / Chief Executive Officer of the African Reinsurance Corporation (Africa Re), the leading reinsurance company in Africa and the Middle East in July 2011.

He rose to that position after a two-year transitional period as Deputy Managing Director / Chief Operating Officer of Africa Re, a company he also served as a Board Director for three years between 2002 and 2005.

Before joining the reinsurance industry, Mr. Karekezi spent 17 years in two leading insurance companies in Burundi (SOCABU s.m.) and Rwanda (SONARWA s.a.) where he occupied various senior accounting, reinsurance, financial, technical (Life & Non-Life) and strategic positions, the last being Chief Executive Officer of SONARWA s.a.

Mr. Karekezi has contributed significantly to the development of the insurance and reinsurance industries in Africa by participating in various national and regional initiatives (insurance organizations, reinsurance pools, insurance supervisory boards, etc.).

Currently, he sits on several boards of continental companies and institutions: Executive Committee Member of the AIO (African Insurance Organization), Board Member of Shelter Afrique (leading Pan-African housing finance company), Vice Chairman of Africa Re South Africa Ltd. (No. 3 South African reinsurer) and Vice Chairman of Africa Retakaful Co. (No. 1 Islamic reinsurer in Africa based in Egypt).