African insurance sector a key source of capital for the continent

Gilbert Anyetei, alternative investment associate, RisCura.

Insurance penetration, which comprises life insurance and non-life insurance products, is calculated as a percentage of gross domestic product (GDP). It enables the comparison of different sizes of economies.

Insurance firms are an important source of capital for investment on the continent as they invest the premiums they receive from policyholders into capital markets to ensure they can cover claims. As such, they are key institutional investors alongside pension funds, development finance institutions (DFIs) and banks,” says Gilbert Anyetei, alternative investment associate at RisCura.

“South Africa measures up quite well and has the fourth largest insurance industry in the emerging markets group. The South African insurance market is supported by a sound regulatory environment, diversified multi-channel distribution and high level of local competition,” he says.

Emerging markets

The country, at 12.89%, has the highest insurance penetration of the emerging markets under review, far exceeding China at 4.2%, which came in second on this measure. India’s rate is 3.9% and Brazil’s is 3.9%. Russia and Turkey are at the bottom end of the scale with rates of 1.53% and 1.33% respectively. Of the frontier markets Namibia is the standout country, with a penetration rate of 7.25%, while Morocco’s rate is 3.88%, and Tunisia’s is 2.14%.

Russia has experienced the highest total premium growth in 2018, at 12.5%. Anyetei says this is mostly driven by increased demand for loans and mortgages that drove demand for life insurance products. Mexico, India and China experienced positive total premiums growth in 2018, which was mostly driven by the non-life premium increase. In general, the growth in non-life premiums is correlated to the macroeconomic environment, and thus positive economic growth generally supports non-life premium growth. Egypt is a clear exception in this regard. However, the reduction in total premiums is mostly due to the gross underdevelopment of the industry in that country.

“South Africa experienced stagnant growth in its total premiums, but this is in line with the stagnant economic growth and high unemployment rates.”

African markets

In Africa, Morocco, Nigeria and Zimbabwe experienced positive total premium growth in 2018 overall. For Morocco and Nigeria, this was mostly driven by an increase in life premiums.

“The boost in life insurance in Nigeria is due to an increase in savings and protection-related financial products in that country.” Kenya experienced low premium growth mostly due to the country’s low insurance penetration levels (0.63%); which also stems from its low levels of urbanisation. Just over half of the populations of the 37 African countries that form a part of the study live in rural areas.

When comparing the insurance industries of different markets around the globe, investment analysts also look at the gross insurance premiums written (GPW). Africa’s GPW accounts for 1.56% of global GPW, according to the report. South Africa is the leader on the continent, with its GPW accounting for 0.93% of global GPW. China is the insurance market leader in emerging markets, accounting for 11.07% of global GPW.