Reliance on European capital makes energy transition conversation tricky for African insurers, agrees ASR round table

Reliance on European capital makes energy transition conversation tricky for African insurers, agrees ASR round table

Much as African insurers might like to control their own futures, the reality is that capital ultimately comes from Europe and the US.

That was the stark message from Jephita Gwatipedza, chief operations officer at Zep Re. Talking as part of a round table hosted by Africa Speciality Risks (ASR) and Africa Ahead, he said it is important that African insurers continue to see positives in accessing capital from the global markets, even if that is a challenge in terms of the energy transition.

Several members of the round table felt that Africa is being dictated to by the global north in terms of the energy transition – pushing for insurers to end support for fossil fuel interests, before the continent is ready for any kind of transition.

They felt that, with only 47% of Africans having access to electricity – meaning some 600-million people have no power – African insurers must continue to support all forms of electricity as the continent moves towards renewables.

All the participants agreed the global north was taking an unfair stance on coal in particular but also on oil and gas, demanding that insurers withdraw cover from these risks, despite many African economies being dependent on the revenue derived and many Africans having no access to power.

There were questions raised over the implications for Treasuries across the continent if the valuable tax revenue from fossil fuels was axed too quickly. While Africa is able to supply the rest of the world in meeting their fossil fuel demands, it does not have the existing infrastructure to supply the same demand via renewable energy sources.

Mufaro Chauruka, managing director at Emeritus Re, pointed out “a recent drive from Maputo to Johannesburg was populated by vehicles heading to the coast to take oil and coal to the northern markets of Europe”.

The good news is, they agreed, that Africa can, in time, resource itself to provide power to more people via renewables, but that still leaves the question of replacing the Treasury income.

Participants also considered it somewhat ironic that Africa is under pressure to stop fossil fuels when those fuels are serving not Africa, but the very global north that is telling them to stop. Words like hypocritical were used but, as Mr Gwatipedza stressed, the African insurance markets cannot ignore the benefits that it does have courtesy of the capital flow from the global north.

Mikir Shah, CEO of ASR, summed up the issues. “It is unfair to expect Africa to make up for the ‘sins’ of the global north’s development of the reliance on oil and gas. It must be a fair transition to renewable sources, but that has to be at an African pace.

“When talking about ESG, we must be cognisant of the S as well as the E.”

Having said that, he added: “I actually believe Africa will leapfrog the global north in terms of renewables and develop solutions much faster.”

That view was echoed by the other participants, including Lee McAlister, executive head: facultative at Aon Re in South Africa, who said the way Africa had jumped ahead on mobile telephones, instead of fixed line telephones, was a great example of just that.

Suzan Pardesi, head of energy at ASR, also stressed: “everyone wants to reduce carbon emissions” but she said that it is also a political issue, with countries in Europe pushing for net zero, but others like the US threatening anti-trust action against those who push the agenda too hard.

Turning to finding a positive way forward, the group agreed that the push for renewable solutions is well and truly on.

Kenya is one African country which has embraced the drive for renewables, said Peter Maina, CEO of East Africa Re. “The data validates the fact that Kenya has more renewables per capita of population than most countries worldwide, including many European countries. I think this is a conversation that needs to be had ‒ people need to recognise what we are doing but allow us to transition at our own pace.”

However, even this came with a note of warning. The question of what is actually green surfaced with the round table group questioning whether electric cars can actually be considered green given that the lithium needed to power them comes from sources such as the Democratic Republic of the Congo, where mining is causing enormous harm to the environment.

Mr Shah also questioned the green credentials of products that are mined in Africa, taken to China for refining. and returned to the continent. Solutions, he believed, had to rely on more home-grown refining and production, whatever the basic resource.

There are some positives already, with Africa being home to the world’s second-largest solar farm, said Lesley Kruger, head of Africa at MNK Re, while John Usiko, chief operations officer at NASRIA, also pointed out that ESG is not just about the environment.

“The emphasis has been on the E for environment and not so much about the S for social and the G for governance,” he said, stressing that it is vitally important that no one forgets the S and the G in their race towards improving the E credentials.

Again, looking for the positives, he said, African insurers have real opportunities to improve their products, and so enhance ‘S’ and ‘G’ credentials. Mr Gwatipedza  believes that improving governance in particular would help African insurers in their conversations with those providing capital from the global north.

That would also enable the development of a stronger carbon capture market, added Ms Pardesi, who sees real opportunities for African insurers to develop new markets and to balance the books a little more in terms of ESG. She also questioned whether more insurers could afford to pay slightly less commission and use that extra funding to give back to local communities, again strengthening their social credentials.

Mr Shah stressed that ESG is at the heart of ASR operations, from the original investor through to underwriting and managing claims. Working with smaller operators to develop innovative solutions around energy has strengthened their resolve as a group.

“For example, we have developed a unique energy parametric cover which protects the investors into renewable projects and guarantees the power output; this gives investors confidence in African projects and also supports local communities.”

He concluded that it is time for African insurers to take positive action to develop new opportunities while supporting their clients through the coming energy transition.



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