….As Nigeria tops three attractive markets

Favour NNABUGWU

African insurance market is said to be warming up for sustainable growth as a result of good governance, adherence to market rules among others just as Nigeria insurance market topped the list of three attractive markets in the continent, according to A.M. Best. a renowned rating agency.

A number of African economies are growing by 5 percent to 10 percent and more, much faster than the mature markets, with drivers such as energy, construction and mining projects. This has made them attractive to insurance groups in the United States and Europe, where growth has been more limited.

Insurance markets in Africa including Nigeria comprised of 54 different countries of varying economic, political, geographic and cultural diversity. Taken as a whole, Africa has a combined gross domestic product (GDP) of approximately USD 2 trillion, which is nearly equivalent to that of Canada and greater than Australia, both resource-based economies.. According to the World Bank, Africa economically was the world’s fastest growing continent in 2013, and GDP is expected to rise by an average of more than 6percent annually between 2013 and 2023.

Dr Edem Kuenyehia, Associate Director, Market Development & Communications of A.M. Best in a mail to SWEETCRUDE, said despite strong average GDP growth for the continent overall, many insurance markets in Africa are small by international standards. Insurance penetration, while growing, is low at less than 1percent overall, and insurers have faced challenges that include political risks, greater competition and increases in minimum capital levels.

Kuenyehia observed that countries with strong economies driven by oil and mining projects, have seen much greater demand (with reinsurers leading the way), affordability for poorer economies has remained an issue, even though insurers are working to make insurance products more accessible.

The challenges of Africa’s insurance markets, he postulated, lies with penetration growing from a low base However, the challenges of Africa’s insurance markets with penetration growing from a low base are offset by the underpinnings of expected, strong economic growth and significant

“Africa’s insurance and reinsurance markets continue to attract close scrutiny and rising interest from financial market participants around the world. These include, the mature markets of the United States and Europe, which have historically had a presence on the continent, as well as newer entrants from emerging BRIC (Brazil, Russia, India and China) countries”.

In addition, he said, robust regional cross-border activity with Africa-based insurance groups buying other regional insurance companies such as witnessed in Nigeria has created a vibrant landscape while improvements in governance, giving protection to private interests and investments. This has created excitement in the insurance sector.

A.M. Best believes there are significant opportunities for direct insurers and reinsurers in key markets in Africa, particularly in fast-developing sub-Saharan markets such as Nigeria, Kenya and Ghana.

Improved governance and stability
Alongside economic performance, improvements in both political and macroeconomic stability have helped to reinforce Africa’s strong growth dynamic. This is reflected in a marked reduction in armed and civil conflicts on the continent and the rapid rise of democratically elected governments where power is transferred peacefully.

The rise of transparent and reliable legal systems is giving better protection to investments, helping to guarantee that conflicts with counter-parties receive an equitable hearing by applying the rule of law. Improvements in monetary and fiscal policy, as well as better debt-to- GDP levels resulting from selected debt reduction and better tax/revenue collection, have also helped to support economic growth on the continent.

Favourable demographics and a young work force
In contrast to Western countries that are wrestling with lower birth rates and the burden of aging and declining populations, Africa is the world’s youngest continent with a median age of 20, according to a 2013 report from Ernst & Young.

As a result, Africa’s labour force is expected to total more than 1.1 billion people by 2040, which exceeds projections for China’s and India’s workforces. Overall, it is estimated that Africa’s population will double in the next 40 years to reach about 2 billion, which will represent 20percent of the world’s population in 2050, according to the report. The continent’s fast rising population is underpinned by greater access to medicine and health care.

Improving business environment
Evidence shows that economic performance has been facilitated by business-enabling policy reforms in addition to sharp improvements in security and peace in the region. The ease of doing business in Africa has improved, and recent trends are encouraging.

Among the 50 economies making the most improvement in business regulation for domestic firms since 2005, 17 are in sub-Saharan Africa, according to the World Bank’s 2013 Doing Business Report. In addition, from June 2011 to June 2012, 28 out of 46 governments in sub-Saharan Africa implemented at least one regulatory reform making it easier to do business – a total of 44.