As East Africa’s oil, gas sectors grow, risk covers will be key
What you need to know:
Opportunities
Reinsurance, providing insurance to insurance companies, has been growing fast in Africa because as more individuals take up life and non-life covers, opportunities are opening up. However, in relation to GDP, insurance penetration remains low.
The North African states like Egypt, Morocco have one of the highest ratios of insurance premium to GDP. Nigeria leads in sub-Saharan Africa.
Continental Reinsurance, which is listed on the Nigerian Stock Exchange, is taking advantage of the low penetration to expand its business.
It operates in 43 African countries and has offices in Cameroon, Kenya and Cote D’Ivoire.
The company’s gross premium has grown at an average rate of over 65 per cent over the past five years from $18 million in 2007 to well over $ 77 million in 2011.
Continental Reinsurance’s shareholders include Emerging Capital Partners, CDC and UK, Investec Asset Managers.
It has a B+ (Good) rating by AM Best for financial strength, credited for robust risk-adjusted capital.
Continental Reinsurance, the Nigeria-based composite insurance company, plans to increase its footprint in the region, with oil and gas among sectors it is eyeing.
The company’s CEO Femi Oyetunji spoke to Emmanuel Were about opportunities in the reinsurance and insurance sectors.
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You recently upgraded your Kenyan office to a subsidiary. What informed your decision?
We have had a presence in the market since 2008. So the next logical step is to incorporate in the country and strengthen our structures. We are proud to set up the operation capitalised with Ksh500 million ($5.9 million). We intend to increase the paid up capital to Ksh800 million ($9.5 million) within the next year.
How will you work with local insurance companies?
We have a full team of inhouse actuaries who help in evaluating the risks. We play a bigger role in helping insurance companies understand their business; for example in charging of adequate insurance premiums.
This is where we come in and have resources that will help in pricing our products. Insurance remains underdeveloped with the penetration in Kenya at less than 3 per cent.
The Kenyan market has 45 licensed insurance companies. Some say this figure is too large. Mergers and acquisitions have been proposed as the best way to strengthen the industry. Also, there are measures to have insurance companies raise capital. What is your take?
Raising capital is the best but not the easiest of ways. When you force companies to merge you could end up with strange bed fellows.
Industry players go through several development phases. Most companies are started by entrepreneurs who are not willing to let go of control. The regulator might force them to let go of control. The next generation is often more concerned about the value they are creating and not necessarily control.
What is your plan of action as you enter the region?
We plan to develop some of our products including agriculture insurance and oil and gas training.
Does oil and gas represent a significant potential in the sector?
The entire region has been deepening the oil and gas sectors, as well as coal. So the potential is significant.
There are insurance companies which cover all aspects of the infrastructure of the oil and gas industries, including workers life and workman’s compensation. So what the re-insurance companies do is to underwrite the risk of the insurance companies.
Will Kenyan insurance companies and reinsurers be able to handle underwriting considering the huge risks in the oil and gas sector?
Oil and gas risks are huge and you need huge balance sheets. The risk is distributed across the world and it is important not to bite off more than you can chew. So it is important to start with what you can handle.
What is the size of your oil and gas business in Nigeria?
It accounts for between 10 and 15 per cent of our business (in 2011 Continental Re earned $62 million dollars in premiums) and it is growing in Nigeria.
We have a specialised desk for oil and gas business in Nigeria. In addition we have received training from Lloyds syndicate, which is a British insurance and reinsurance market, on the oil and gas business.
Does compulsory insurance assist in growing the business?
In Nigeria, it is compulsory for any company with more than five employees to provide them with general insurance. So we expect other African markets will develop to those levels.
Although Africa is faced with very few catastrophes such as earthquakes and hurricanes – which occur in developed markets and are a business line for reinsurance firms — the continent is perennially devastated by drought. How does this affect business?
Africa is blessed and therefore experiences few of those natural catastrophes. However, there are small pockets of natural risks such as the hurricanes along the coast of Mozambique. We are learning to quantify those risks.
The sector in general is studying the natural catastrophes. There is development of a weather base index in insurance, which will help in providing guidelines in underwriting drought and flooding.
Although Kenya is yet to be comprehensively covered, a few large agricultural estates are taking up the cover. In Zambia, we have a well developed drought insurance products.
