An Africa first approach to reinsurance

Johannesburg - Climate change, digitalisation and infrastructure are among the trends that will define the Africa risk environment over the coming decade. These trends, and the sub-trends that emerge from them, present opportunities for insurers and reinsurers to offer risk management and risk mitigation support to African businesses and consumers. Africa-based reinsurers will also play an important role in facilitating investment into high value projects across the continent, thus contributing to an enabling environment for countries to achieve their economic growth potential.

Nico Conradie, CEO of Munich Re of Africa (MRoA), says that the group’s 50-year plus presence in Africa leaves it well-placed to participate in the accelerated development that will take place as the continent works towards the United Nations’ 17 Sustainable Development Goals (SDGs). “We see ourselves first and foremost as an Africa-based reinsurance business, with the added benefit of easy access to the global reinsurance capacity and risk mitigation expertise that vests in our parent, the Munich Re Group,” says Conradie.

The SDGs are inextricably intertwined. You cannot, for example, address poverty (Goal 1), hunger (Goal 2) and inequality (Goal 10) without creating employment and economic growth (Goal 8). And you cannot protect life below the water (Goal 14) and on the land (Goal 15) without taking strong climate action (Goal 13). More importantly, you cannot provide access to quality education (Goal 4), clean water and sanitation (Goal 6) or affordable and clean energy (Goal 7) without investing billions of dollars in infrastructure. Although Munich Re keeps each of these goals in mind when developing and implementing group strategy, the Africa region is particularly interested in the potential in infrastructure.

Africa will have to spend around US$150 billion per annum on infrastructure if it hopes to achieve the SDGs by 2030, which is good news for insurers and reinsurers alike. “Big infrastructure projects are an important driver for reinsurance growth; they require substantial amounts of capital and are not investible without appropriate insurance covers to mitigate the risk,” says Conradie. He points out that a new bridge, dam or power plant not only boosts economic growth; but serves as an uplift for the businesses and communities in the immediate vicinity of the project.

Economic growth on the back of infrastructure investment has always been acknowledged as central to solving social challenges such as education, inequality, poverty and unemployment. More recently, the focus has shifted to achieving impact and sustainable outcomes by keeping environmental, social and governance (ESG) factors ‘top of mind’ when investing.

Sipho Mthabela, Head of Africa Strategy at MRoA, says that relationships between reinsurers and large infrastructure projects evolve over time. The type of risk management and risk mitigation solutions delivered by a reinsurer change during the multi-year lifecycle of a project as it goes from construction to handover, to its operational stage, and finally to its decommissioning. “There is a natural progression of insurance needs that accompanies a new dam being built and each large infrastructure project generates a pipeline of downstream economic activity that we, as a reinsurer, are happy to be part of,” says Mthabela.

Agriculture, food security and water scarcity are key themes in an African context, bringing concerns over climate change to the fore. The continent’s abundant natural resources make it ideally suited to innovative solar and wind power solutions. “We believe the continent will play an important role in helping the developed world to address climate change and welcome the opportunity to provide reinsurance solutions as both governments and the private sector seek ways to reduce their carbon emissions and build renewable energy solutions,” says Conradie.

Africa has a mixed track record when it comes to adopting and developing new technologies. “There are areas where Africa leads, such as the famous mobile money system that grew out of Kenya, and areas where we lag,” says Conradie. MRoA recognises the global digitalisation trend as an opportunity for insurance and reinsurance businesses to develop innovative products in areas as diverse as agriculture and cyber insurance. The Munich Re Group is already a big player in the field of digitalisation and its associated risks, and MRoA stands ready to support Africa-based businesses with insights gathered from group operations, worldwide.

The ongoing transfer of experience, knowledge and skills is essential to position Africa on the global insurance and reinsurance stage as well as to improve operational prospects on the continent. “Our philosophy is that the investments we make in educating industry stakeholders will pay for itself over time,” says Mthabela. “The knowledge and expertise we share with our African clients not only creates new risk markets but also contributes to an improved risk management and claims experience”.

Conradie points out that Africa is unique and that it is a mistake to lump the continent with the emerging market category. “We are not at risk of disappearing into an emerging market basket; part of our differentiation is that we trade out of Johannesburg with an entirely Africa focus,” says Conradie. Being on-the-ground in Africa has many other benefits too, not least of which a clear understanding that there are 54 unique country markets on the continent. An Africa-based reinsurer must therefore follow a flexible growth strategy that can accommodate differences in countries as diverse as Angola, Kenya, Nigeria and South Africa. What can Africa expect from its trusted reinsurance partner over the next three to five years?

“My three-year wish list includes the substantial development of human capital in especially the African insurance and reinsurance industry; that we make faster progress in the area of cyber risk; and that Africa plays its part in finding sustainable climate change solutions,” concluded Conradie.

The reinsurer also has great hopes for the African Continental Free Trade Area (AfCFTA) deal, which is aimed at improving intra-Africa trade. “We want to play our part in improving inter-country trade across the continent and in so doing, make our contribution to uplifting the lives of all who inhabit the continent,” concluded Mthabela.