THE ROLE OF INTERNATIONAL, REGIONAL & LOCAL REINSURERS IN THE
MARKET
1. CAPACITY
Regional reinsurance companies were started with the aim of provision of reinsurance capacities
through the underwriting of reinsurance business and thereby retaining within the region part
of the business which were hitherto reinsured outside the region. In every branch of insurance,
there are risks which, because of their sizes or their nature, an insurance company cannot afford
to keep for its own account. Such risks are numerous, the Commercial Passenger aircraft being
an example. These risks would be beyond the limit which is prudent for one insurance company
to carry, and it is necessary for that company to affect reinsurance. Local insurance companies
for along time depended on International markets for reinsurance of their risks as individually or
even collectively, they were not able to retain large portions of the risk. Conducting business
with international reinsurers meant that the individual local companies had to export money
abroad. The amount of money thus exported formed a large portion of each country’s payment
for international services. Since their formation, the regional and local reinsurers have curbed
this outflow of cash so that the reinsurance premiums are retained and invested in the region.
The reinsurance companies have therefore created reinsurance capacities which have enabled
acceptance and retention of larger risks. This has its benefits in that our growing economies with
their peculiar African characteristics have had local grown support/solutions. Statistics for the
period between 2004 and 2010 indicate that the local and regional reinsurers (Africa Re, Kenya
Re, Zep-Re, and East Africa Re) have written a gross premium income of US$. 3,496,173,270 . By
the end of year 2010, total investment for the four regional reinsurers was US$. 4,130,127,298,
with total assets amounting to US$. 1,314,022,327. The multipliers effect of this invested
premiums have had profound effects on the Economic Activities of the region WRITTEN
PREMIUMS AND INVESTMENTS MADE BY THE REINSURERS. The table below shows details of
gross written premiums, investments made and the asset base of the Regional Reinsurers
between years 2004 and 2010. Figs in US$. UY WRITTEN PREM INVESTMENT S TOTAL ASSETS
2004 321,558,673 297,675,022 672,019,056 2005 378,786,571 428,653,654 723,779,510 2006
385,461,141 572,712,833 809,278,414 2007 477,078,498 733,755,795 962,774,071 2008
505,775,104 623,607,851 960,143,851 2009 659,340,935 687,574,885 1,155,508,879 2010
768,172,348 786,147,258 1,314,022,327 TOTAL 3,496,173,270 4,130,127,298 6,597,526,108
2. STABILITY
Reinsurance companies have added stability to the insurance industry and to the local
economies by evening out the results of the insurance companies as they continue to absorb the
impact of large losses which would have lead to very damaging results to the individual
insurance companies. In the recent past, there has been an upsurge in the numbers (frequency)
and size (magnitude) of the claims. The reinsurers have proved themselves by settling the claims
and facilitating the return of production to the affected industries and other business concerns.
Wide swings in results of an insurance company can be very damaging to its image with the
public and will cause a lot of concern to the shareholders. One area of concern is that
International Reinsurers being the fair whether friends they have proved to be usually pull out
from the African markets during the tough times, when profits are low, profits being their major
objective. They will however sneak back whenever the conditions become more favorable. This
in and out movements leads to a very volatile and unstable situation which impairs economic
growth , as the insurance sector plays the key role of protecting the economic activities. Their
withdrawal means that the indigenous African insurance companies would have no reinsurer to
turn to and would in turn be bullied into accepting terms that are inclined to exportation of
more premiums outside the continent. The regional and local reinsurers have effectively given
the capacity and stability needed whenever such withdrawals occur and will continue to do so as
they are here to stay.
3. FINANCIAL ASPECTS.
The other main role of reinsurance has been in its financing aspect. One of the yardsticks used
by regulatory bodies in controlling insurance companies is the measure of their solvency. This is
calculated by the percentage which the capital and free reserves of the company bears to its
gross net premium income. These authorities have minimum solvency requirements below
which they would not allow companies to operate. By ceding premiums to reinsurance
company, the insurance company automatically enhances its solvency margin.
4. CLOSER COOPERATION
Regional reinsurers have served to create forums for exchange of ideas by companies in the
region. Markets used to be so far apart depending on their colonial histories. The neighboring
countries with different colonial histories knew virtually nothing or very little about each other.
5. TRAINING AND MANPOWER DEVELOPMENT
In addition, the Regional Reinsurers are seriously engaged in the manpower development for
the insurance sector by offering technical services as well as training opportunities in the region
to enhance insurance and reinsurance knowledge. Regional reinsurance companies have also
provided employment opportunities which have improved living standards and welfare. The
Regional reinsurers have participated in the insurance and reinsurance activities, such as loss
prevention exercises, creation and Management of insurance and Reinsurance pools, notably
The COMESA Yellow Card Reinsurance Pool, The African Fire Pool, The Oil and Energy Pool , The
RCTG Pool among others. These pools in their own ways have contributed to the economic
development of the region. As part of the global players, the reinsurers have been able to
attract international funds through reinsuring of risks with international players. For the
liabilities ceded out, the international reinsurers have responded whenever a claim situation
arises, and this has brought in funds from overseas. In summary we can say that the regional
and Regional reinsurers have played their roles very well in enhancing Economic development.
CHALLENGES TO THE REGIONAL REINSURERS
The challenges facing the insurance and reinsurance sector are profound and there is no sign that
there will be relenting soon. The challenges are both internal and external. The most obvious
challenges that come to mind are:- Lack of skilled manpower, The sector will certainly need
better trained, better quality people to maintain the pace of growth so far achieved. The
reinsurers have chipped into these areas by offering activities geared at the development of the
technical skills necessary. Slowing and stunted economic growths, Trends in the world
economic, political and domestic priorities are changing at a very fast rate and in a manner that is
unpredictable. Most of the remedies prescribed by the Western based development agencies have
created adverse effect in our developing Economies with the low income and debt servicing
problems. Changes in the environment There have also been changes in the environment which
are uncontrollable. These changes in the environment have given rise to the emergence and
increase in the occurrences of natural catastrophes such as Earthquakes and Tsunamis, storms
and floods etc. The frequent occurrence of these events is likely to spell doom to most insurers
and even reinsurers as they might not be adequately prepared for them. The catastrophic covers
arranged with international reinsurers are not adequate as such covers are usually very expensive
to purchase. Unhealthy Competition: Unhealthy competition amongst reinsurers poses another
major challenge as the practice involves rate cutting and offering of soft and un-economical
terms.
This is a dangerous situation as no business concern can survive if it cannot meet its obligations,
due to lack of revenue. This problem has further been compounded by lack of proper
understanding of risks and lack of credible data that can be used to develop rating guidelines and
claims models. However all is not lost as reinsurers in conjunction with the world players in the
field are coming up with solutions to some of the challenges. Political Instability: Another major
challenge has been the Political Instability in some member states. This has led to slow growth in
some sectors of the economy, and a general reduction in investments, which is the main
operating area of the insurance and reinsurance sectors. The Political Instability also creates
chaos which leads to losses and damages which would result in adverse claims experiences. In
addition the instability leads to other economic problems, which usually accelerate the
incidences of crime, fraudulent claims and general normal hazards.
