Reinsurance and insurance markets are quietly optimistic despite a clear market softening in some areas, citing this as a “new normal” rather than a sign of a traditional soft market.
Speaking at a round table hosted by Africa Specialty Risks and Africa Ahead on the eve of the African Insurance Organisation’s Reinsurance Forum in Mauritius, a group of market experts agreed there were distinct signs of market softening in many areas.
They stressed it is not a uniform pattern but for those with low loss records and in certain segments of the market, rates were clearly coming down.
However, instead of a feeling of doom, most of the attendees felt positive that the market was reacting in a more disciplined way and was continuing to underwrite risks fully.
Sean Paradine, head of treaty at Africa Specialty Risks, said they had been watching market moves carefully and were comparing the situation with 2017/2018 when there was the last truly soft market. “We always watch the market waves,” he said, “and people might say rates are down compared to the period just after the Covid-19 pandemic but we are not quite in the same place as we were in 2017/2018.”
Paradine believes the next renewals on 1/1 2027 could well see the market fall further but the question is whether that will be the end of rates falling or whether there is further to go. His belief is that should mark the end of this particular cycle, or otherwise companies may well be entering negative turf and it could mark the end of some businesses.
Rates face further cuts
Julien Rivet, senior manager corporate business at Swan Insurance, believes “There is still a window to buy more reinsurance and protection but one needs to know what needs to be bought.”
He suggested there are two clocks ticking at the moment – firstly, the market clock which is bringing rates down in a soft environment and the second which is a risk clock, which is increasing as geopolitics, climate change and worsening economies are all playing their part.
“We need to underwrite the exposures and remain disciplined,” he said, “because it might be deceiving just to follow the market downwards and then put yourself in a dire state. We need to stay focused.”
Equally important, he stressed, is to maintain relationships between insurer and reinsurer but also between insurer and insured.
“It is a balancing exercise but it could be a win, win, win if we all play our part and if we put greater emphasis on risk management to prevent the claims coming through in the first place. Then lower rates would not be so damaging,” said Rivet.
Africa’s diverse markets defy uniform pricing
Lety Endeley, central director non-life for international markets at CICA-RE Lomé, agreed, but pointed out that much of the pressure on rates was coming from international markets which made it more challenging for local markets. She believes there is a further 10% to 15% to be sliced off the rates – but not for everyone.
“At the moment we only have one or two leaders in the market, most are following the lead and they don’t have much influence on rates. However, there are pockets where there is still not enough capacity and there, we are seeing rates holding up.”
She pointed to countries like India where competition is rife and rates have dropped aggressively. “That is coming to Africa,” she warned. However, Attilio Tornetta, head of MEA treaty and regional retro at Howden Re, reminded the room that Africa is not one place but a continent of many countries, varying regulations and different market conditions.
It cannot be treated as one homogenous zone, he suggested, agreeing with Rivet of the need for market discipline and to underwrite every risk on an individual basis. He also pointed to markets like Kenya where rates are set in some classes by the regulator, keeping control of market discipline and ensuring rates cannot drop to unsustainable levels.
Climate risks challenge softer pricing
Tornetta also said a benign claims environment was fuelling market softening. “This year has been calm (although we are watching Hurricane Simon closely) so I agree that rates could be down 10% to 15% at this renewal, but that will depend on the particular lines.”
He pointed out that, in the past, the Middle East and Africa were seen as non-cat areas but recent events should have changed that perception. South Africa in particular had suffered a number of insured events, while Kenya was seeing massive flood events. Now the continent is facing a Super El Niño, he said, that perception may shift further.
New entrants threaten market stability
However, the group also considered the risks of more international players coming in, often not understanding the true nature of the risks. As Paradine said, overseas markets may see African reinsurers making money and think that they should come in and take advantage. That would drive rates down, he said, but only until one of those major events hit and then that new capacity would melt away.
Herfty Muzyamba, head of technical operations at Finsbury Re, agreed that one major event is likely to scare foreign entrants back out of the market. He worries that climate change is altering the risk landscape significantly and reports that in Zambia there are already concerns about rising temperatures this month and a fear that the rains will not come in November, both of which will devastate the local agricultural markets.
“I think new players come in expecting 100% profit on their business, but it is not like that. Africa is affected by climate change, in particular, and there will be claims.” He wants to see a time when brokers and reinsurers are on the same wave length.
Better data supports underwriting discipline
However, despite what seem like a pessimistic mood, the group do not seem fazed by a soft market, as long as that discipline is maintained.
Greater use of technology and improving data is ensuring insurers and reinsurers can assess risks more accurately than before and they all agreed there are signs of a new maturity where the market will not blindly follow others.
“It is true that there is extra capacity around, but I think African reinsurers have learned from past market changes,” said Urvin Luximon, senior reinsurance broker at EllGeo Re. “People are also talking about the risks we face on the continent, for example Mauritius is highly exposed and we are making sure underwriting is sustainable so polices are sustainable.”
Dr Rishi Sookdawoor, group officer in charge and COO at NIC Group, added “Insureds are realising they need to pay the right price for the right coverage. They know they need the right cover at the right time and would rather pay more than be left uninsured.”
He explained increasing governance among insureds and the development of the risk management discipline means that insurers are talking to people with knowledge and understanding – all of which is helping to support proper pricing.
The group all agreed that it is not only insurers who are maturing but the whole insurance chain, starting with insureds right through to reinsurers. That is helped by greater use of technology and better data collection.
But they agreed, history is no longer an indicator of the risks ahead. They also agreed that there could not be over-reliance on artificial technology to do the job of underwriting. It makes a good enabler but is no replacement for old fashioned market discipline.
As Rivet concluded “You can be involved in a soft market, but the underlying exposures remain. The focus must be on those risks. We have to strike the right balance.”