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Financial recovery: African insurers, reinsurers explore non-traditional areas

By Patience Saghana
African insurance and reinsurance companies are likely to explore other areas outside the traditional insurance as a faster recovery measures, following by the advice of Ms Laila Ben Barka, Deputy Executive-Secretary of United Nations’ Economic Commission for Africa at the 37th African Insurance Organisation held in Banjul, Gambia last week.

Barka imlore insurance companies in Africa to see how best they discover hidden potentials in housing and pension
She said, “There is great potential for African insurance and reinsurance sector. However, in order to tap into its potentials, the African insurance industry must make greater use of its own basic principles of managing risks in venturing into non-traditional areas of economic activities in the continent”

To ensure its own survival, the African insurance industry must help African countries to climb out of economic and financial crisis, she said in line with the theme of this year AIO conference Survival of the African Insurance Industry in the Face of the Global Financial Crisis

Barka who represented Mr Abdoulie Janneh, UN, Secretary-General at the 2010 AIO conference in his Key Note address said, “There is no denying that fact that global financial crisis has halted Africa’s economic recovery and cut growth from about 6 percent experienced in 2007 to less than 2 percent in 2008”

Another key area in which insurance sector can play a leading role is in the housing sector. For instance, several of our countries have accumulated substantial amounts in pension funds, which can be more profitably if channeled to productivity activities.

The very huge deficit between demand and supply for housing in Africa can be addressed to a large extent by collaboration in terms of joint venture between actors in Africa’s insurance, pension fund and housing sectors
This funding indicates two clear facts. First, that the growth opportunity of the African insurance industry has been slow, and second, that the great potential that abounds in both the insurance industry and reinsurance have been largely untapped in Africa.

Recent statistics regarding growth in the financial services industry on the African continent show that growth in the insurance industry is slow when compared with other sectors of the economy.

Barka however advised African insurance sector mourn on the impact of the crisis, rather the industry should key in into the opportunities that the economic crisis is leaving behind.

Some other African countries like Burkina Faso recorded a market turnover of 26.5billion CFAF in 2008 from 25billion in 2007; Cameroon market showed measurable performance from 107billion CFAF in 2007 to 120bilion CFAF in 2008; Code D’Ivoire recorded 1.5 percent growth in 2007 to 1.8 percent in 2008.; Gabon realized 62.4billion in 2007 to 68 billion in 2008; Mali turnover was put at 18.5billionCFAF; Rwanda 12billion CFAF; Senegal, 75billionCFAF to mention but a few.

But for the impact of the global recession, some fast growing economies in the continent had demonstrated faster growth in their premium income, Angola, Kenya and Nigeria for example (Africa’s fastest growing insurance markets) have each demonstrated GDP growth in excess of 6 per cent percent per annum over the last two years, with Angola’s economy expanding by about 15 per cent in 2006, Kenya by about 6 per cent and Nigeria by over 6 per cent”.

Barka said African insurance industry should however not be threatened by its market size but should take a more trans-boundary approach in supporting broad based economic activities such as trade, manufacturing, tourism and industrialisation.

Aja Isatou Njie-Saidy, Vice-President of Gambia at the opening ceremony of the 37th African Insurance organization (AIO) at the Sheraton Hotel in Gambia yesterday, there are indications that the economic meltdown worse hit by Africa is gradually recovering

According to her, “Against the backdrop of the increased world trade and industrial production, the global economic continue to show strong signs of recovery”

Sub-Saharan Africa’s fiscal balance, excluding grants (i.e. the balance of governments’ revenues from tax and asset sales less their spending, before counting aid) declined spectacularly from a surplus of 0.3 per cent of GDP in 2008 to an expected deficit of 6.4 per cent in 2009. In real terms this translates into a transition from a surplus of $3 billion to a deficit of $64.4 billion.

Fiscal balances and changes therein vary considerably with the characteristics of the economy. Low-income countries (which in aggregate have suffered modest declines in output growth) saw their fiscal balance decline by only 0.8 per cent of GDP between 2008 and 2009, whereas for oil-exporting countries it slumped by 12.3 per cent.

The Gambian VP said, “The global economy contracted by 0.8 percent in 2009 but it is expected to expand by 3.9 percent in 2010. The growth in Africa was revised upwards to 4.3 percent in 2009 and is forecast to expand by 5.5 percent in 2010. And as we emerge from the financial crisis, let us resolve that we would work together and in concert to grow the industry to its fullest potential”

Njie-Saidy noted that African continent is a patchwork of differing vulnerabilities and resiliencies to the economic crisis. Even within nations and sectors the impacts have varied greatly. In places where the headline macroeconomic figures suggest a limited impact so far, pockets of insurance and reinsurance companies are reeling from the consequences of the crisis.

Though remarked that those that cannot learn from the history are bound to repeat it, Dr Njie-Saidy who declared the four day conference theme, ‘Survival of African insurance industry in the face of global financial crisis, said financial crisis may not be easy to prevent but could be allayed.

“Can we prevent financial crisis?  Probably not, since they are a structural part of the dynamic financial system. But crisis can be mitigated”

She stated, ‘Economic history has taught us that countries that think long-term, remain true to the policies that have kept them steady and have ensured sustained growth, stand a better chance of surviving a crisis”.
Mr Fola Daniel, Nigeria’s Commissioner for insurance said the nation’s insurance industry is gradually recovering from the financial crisis going by the 2009 unaudited accounts of insurance companies which shown some signs of recovery against the 2007 and 2008 accounts.

According to him, “The result we have so far indicated that we are making some arithmetical progression, showing marginal growth in the fundamentals and I think it is a good omen for the Nigerian insurance industry”, the commissioner said. Larry Ademeso, managing director, Royal Exchange Prudential Life, said a proper reporting standard would go a long way in positioning the Nigerian insurance industry for global competition.

Dr Mike Ikupolati, Chairman, Transport and Entertainment Committee of the 37th AIO said that insurance companies in the African continent cannot afford to undermine ethic of the profession. He said, “Ethics is concerned with study of morality and the application of reason to elucidate specific rules and principles that determines right and wrong for any given situation”.

Ikupoati stated that ethics and adherence to rules and regulations of insurance profession had helped a great deal in the survival of most insurance companies that had indeed not been hit by the global financial crisis.

“The demands being placed on Insurance institutions to be ethical by its various stakeholders are constantly becoming more complex and more challenging”.

“Few Insurance practitioners in Africa and elsewhere have received formal business ethics education or training, which should have improved their ethical decision making processes.

Understanding of business ethics can help us with the ability to assess the benefits and problems associated with the way we handle Ethical issues in our various organizations”


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