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Hard market impacting capacity in Africa: ASR

Africa Specialty Risks' CEO says recent losses including the flooding and political unrest in KwaZulu Natal, South Africa have led to capacity exiting the market

Global reinsurers are redirecting capacity to other markets, leading to shortages across many lines in Africa, Mikir Shah says

Hard market conditions in Europe and America are contributing to a shortage of capacity across Africa, the head of Africa Specialty Risks (ASR) said.

Mikir Shah, chief executive of the continent-wide re/insurer, said global reinsurers were redirecting their capital to profitable hard markets, which was having a knock-on effect on capacity across the continent.

He added recent losses including the flooding and political unrest in KwaZulu Natal, South Africa had also led to capacity exiting the market.

“The larger reinsurers are focusing their firepower on the hard markets they see. They can deploy their very large balance sheets in an effective manner and drive their own probable maximum losses and combined ratios, which we’ve seen. And that’s a perfectly sensible set of actions,” Shah said. “What it does mean is in Africa you see a shortage of capacity across many lines.”

Shah added ASR has worked to fill the capacity gap where possible, including by bringing in partner organisations to provide cover where appropriate.

Despite the current capacity issues, Shah is positive about the ongoing growth of both ASR and the African insurance market. This year the underwriter inked a $10m capacity deal with Africa Re and gained Lloyd’s coverholder status.

“Lloyd’s has a fantastic branding and has a good franchise across Africa. We also have our own branding and franchise and they’re very symbiotic,” Shah said. “And then Lloyd’s has Lloyd’s Lab, which is focusing on innovation and artificial intelligence, and there are quite a few innovations we’re putting through that are genuinely groundbreaking.”

ASR is developing a range of technologies to support its work, including automated underwriting systems and parametric policies. A nation-wide parametric policy for cyclone cover, agreed with the government of Mozambique, recently paid out for Hurricane Freddy seven days after the final sum was calculated. “That’s an example of innovation we use in Africa that can be used anywhere in the world,” Shah said.

“In Europe, inflation, supply chain disruption and high interest rates are new items. We’ve always had them in Africa, so we know how to deal with them.”

Another potential area for growth is the inking of an Africa free trade agreement earlier this year – expected to come into force in 2025. ASR is already working with relevant governments to ensure the right insurance products are in place to facilitate cross-border trade. “We’re already seeing interest from a lot of global manufacturers that have now realised they need to relocate their manufacturing facilities into Africa to take advantage of this,” Shah said.

“A manufacturer in Kenya may be selling his car parts for the first time to a group of garages in Ghana… if we provide him with the right trade credit insurance, he’ll happily trade with them knowing if the garage chain doesn’t pay, the insurance will. It provides that liquidity backstop.”

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