Reinsurers push for bigger slice of local premiums market

What you need to know:

Insurers often turn to globally recognised companies at the expense of home-grown ones.
The firms are required to cushion themselves against huge exposures by sharing out their premiums with other insurers and reinsurers.

Reinsurers are pushing for regulations that will keep premiums ceded to overseas secondary underwriters in the country, helping save foreign exchange.

Some African countries such as Nigeria and Uganda have moved to lock in insurance premiums, which provide cheap money for development projects, by ensuring that insurers exhaust local capacity before exporting reinsurance business.

“Without premiums in Africa how do you train actuaries, underwriters, bring in people with special skills or build large insurance corporations that can compete across the globe?” Continental Reinsurance managing director Dr Femi Oyetunji asked.

Insurance firms are required to cushion themselves against huge exposures by sharing out their premiums with other insurers and reinsurers.

Insurers tend to turn to globally recognised reinsurance companies at the expense of local and regional reinsurers.

Swiss Re, for instance, was the lead reinsurer in the recently concluded payout of Sh1.95 billion to Jomo Kenyatta International Airport by APA Insurance despite Kenya Re being in a position to absorb the risk.

“It should be evaluated on a case by case. In that case (JKIA), APA gave lead to Swiss Re despite there being sufficient local capacity. In the case of terrorism, however, there is no capacity,” said Kenya Re CEO Jadiah Mwarania.

Kenya Re currently enjoys a guarantee of receiving 18 per cent of the country’s reinsurance premium in a protectionist measure that expires next year.

Other reinsurance companies in the market include Africa Re, East Africa Re and Zep Re.

Association of Kenya Insurers (AKI), however, said there was need to diversify the exposure to avoid the domestic industry being overwhelmed by huge claims.

“It would be counter-productive because you also want to attract the reinsurance business from other markets. Insurance is about spreading risk; not retaining it in your market,” said AKI chief executive Tom Gichuhi.

He also noted that insurers usually have predetermined reinsurance arrangements which need to be approved by the regulator.

Insurance Regulatory Authority (IRA) data shows that reinsurance premiums last year stood at Sh12.4 billion, up from Sh10.4 billion a year earlier.

Risks

IRA did not, however, break down how much of the premiums went to local reinsurers. The gross premiums collected by insurance companies were Sh86.6 billion from the general business from which the insurers pass most of the risk to reinsurers.

Reinsurance companies are concerned that premiums from the upcoming, high risk and capital intensive oil and mining sectors, will also flow out of the country.

Nigeria’s insurance regulator requires that 70 per cent of premiums from the oil sector are retained in the country.

Continental Re and Zep Re are currently involved in capital raising activities as they seek to build their capacities in an effort to attract more business from the country and the region.