By David Whitehouse
Increasingly severe and regular climate-related disasters in Africa exceed the ability of the reinsurance industry to respond alone.
African Reinsurance Corporation is seeking support from African governments for an emergency preparedness plan to help manage catastrophe risk, chief operating officer Ken Aghoghovbia tells The Africa Report.
“We are talking with African governments to help them structure an emergency preparedness plan,” Aghoghovbia says on the sidelines of the AFIS summit in Lomé, Togo. Some governments are discussing whether to support the plan, which is in its early stages, he says.
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Progress appears to have been difficult. “Governments are very slow,” Aghoghovbia adds.
Climate-related disasters in Africa are increasing in intensity and severity, undermining the capacity of African and global reinsurers to accept the risks. For example, flooding in Libya in September killed more than 11,300 people. Aghoghovbia told the AFIS discussion panel that the economic cost of the disaster was still unknown.
Call for help
Smaller disasters don’t make the international news. According to Carbon Brief, around 15,700 people have been killed in extreme weather disasters in Africa in 2023, with a further 34 million people affected.
Fatalities included the 3,000 people killed in flash floods in the DRC and Rwanda in May, and 860 deaths in February from Tropical Cyclone Freddy, which hit countries including Madagascar, Mozambique and Zimbabwe.
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Carbon Brief calculates, more than 29 million people face drought conditions in Ethiopia, Somalia, Kenya, Djibouti, Mauritania and Niger.
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Delphine Traoré, CEO of general insurance at SanlamAllianz, told the AFIS panel that current levels of African catastrophe risk mean “there is no price that will be profitable at the end of the day”.
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The insurance industry can’t do it alone and other global financial players need to help in providing cover, Traoré said.
The market became hard. That will continue
Africa Re partnered with global reinsurance broking and advisory firm Gallagher Re in July 2022 to help strengthen the financial resilience of African countries against climate, crisis and disaster risks. The toolkit offered by the partnership offers analytics as well as regulatory and policy advice.
Hard market
The reinsurer was set up in 1976 by an agreement between African states aiming to reduce the outflow of foreign exchange from the continent by retaining more reinsurance premiums.
Shareholders at the end of 2022 included 42 AU member states, 112 African insurance and reinsurance companies, as well as the African Development Bank.
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Led by CEO Corneille Karekezi, Africa Re has taken steps to improve profitability, which declined every year from 2019 to 2022, including higher premiums and the imposition of dollar prices on risks in Sudan. Net profit for the first half of 2023 was $48.5 million, versus a loss of $22.3 million in the year-earlier period.
Profit in 2024 will “absolutely” show an improvement from 2023, driven by renewals pricing, Aghoghovbia says. “The market became hard. That will continue.”
Reinsurers, he adds, face higher costs for purchasing their own cover, a process known as retrocession.
However, in Nigeria, where Africa Re is based, Aghoghovbia sees little sign that this year’s naira devaluation created a stable currency framework that would allow more underwriting. He says the currency “has not found its level yet.
This article was posted on November 21, 2023 at 05:00 EST/The Africa Report
