East Africa’s reinsurance sector gaining momentum

Kenya Re-insurance headquarters along Aga Khan Walk in Nairobi. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• East Africa’s reinsurance business is fast maturing, with the regional community member states coming up with national companies to ensure premiums remain within their respective jurisdictions.
• This is despite the low levels of insurance penetration in the region as well as political risks and terrorism threats.
• Reinsurance is a process whereby an insurance company reduces its liability by transferring part of the risk associated with an   insurance policy it has underwritten to another insurance company.

East Africa’s reinsurance business is fast maturing, with the regional community member states coming up with national companies to ensure premiums remain within their respective jurisdictions. This is despite the low levels of insurance penetration in the region as well as political risks and terrorism threats.

Kenya’s insurance penetration stands at around 3 per cent of GDP compared with Uganda’s and Tanzania’s at below 1 per cent each.

Reinsurance is a process whereby an insurance company reduces its liability by transferring part of the risk associated with an   insurance policy it has underwritten to another insurance company.

But Udai  Patel, managing director of Afro-Asian Insurance Services Ltd, agents of Lloyd’s Brokers, said that regional reinsurers need to be better capitalised to allow them “to quote for and retain large local risks without recourse to the international reinsurance markets.

“Regional reinsurers should also be in a position to export their services aggressively to countries outside Africa where the local insurance markets are less evolved,” said Mr Patel, adding that there is a need to enhance technical training in order to boost the level of professionalism in the industry.

Uganda launched its first reinsurance company, Uganda Re, in 2014. The reinsurer benefits from a 15 per cent mandatory cession of all reinsurance business in the country. Uganda Re is owned 42.23 per cent by foreign reinsurance companies and 44.44 per cent by local insurance companies. 

The bringing on board of key investors such as Zep-Re, local insurance companies and international reinsurers is expected to promote market confidence in Uganda Re, which plans to list on the Uganda Securities Exchange by 2018.

Uganda Re’s main source of business is internal, which contributed 95 per cent of the consolidated gross premium income in 2015. The Ugandan market accounted for 95 per cent of the company’s non-life business and generated all of the company’s life business.

Non-Ugandan business emanates from East Africa, Indian Ocean islands, parts of Asia and the Middle East, accounting for 5 per cent of the company’s gross premium income from non-life business.

In Tanzania, the only local reinsurance company established in the market is the Tanzania National Reinsurance Corporation Ltd, a government-owned entity entitled to 15 per cent compulsory policy cession.

Several other reinsurance companies do business in the market including Africa Re, ZEP Re, Swiss Re, Munich Re, Hannover Re, Kenya Re, East Africa Re and Continental Re.

Kenya’s reinsurance market is controlled, with few participants and prescribed amounts of premiums to be allocated to reinsurers.

Insurance companies are expected to cede 20 per cent of their reinsurance business to the Nairobi Securities Exchange-listed Kenya Re, which had 71 per cent market share in March last year and is 60 per cent owned by the government.

Africa Re, owned by all African countries jointly, gets a 5 per cent compulsory share of reinsurance, while Zep-Re, owned by the 19 countries of the Common Market for Eastern and Southern Africa (Comesa), enjoys a 10 per cent share, leaving only 65 per cent for private firms