CRA April 2015 - CRA Commercial Risk Africa

Commercial Risk AFRICA
African Risk & Insurance Management News
APRIL 2015
www.commercialriskafrica.com
CRA EVENTS IN AFRICA
—Watch this space!—
As part of its programme of seminars across the
continent, Commerical Risk Africa announces it will
be staging an event in Lagos, Nigeria ....... event/web
COUNTRY REPORT—Ethiopia:
Ethiopia is the fastest growing non-oil-producing
economy in Africa with average GDP
growth of 11% over the past decade.......14–19
Kenyan authorities act fast to restore
confidence after latest terror attack
“The Garissa attack, as a standalone
incident, is unlikely to pose a significant
impact on FDI inflows going by precedents
set,” said Konstantin Makarov, Managing
Director of the Nairobi-based research
firm StratLink-Africa Limited.
He bases his answer on the following
precedent; between 2012 and 2013, the
year of the Westgate Siege, FDI inflows
accelerated by 98.9% to US$514.4 million,
which effectively doubled the previous
inflows.
Steve Mbogo
[email protected]
[nairobi]—The Kenyan government
has imposed financial sanctions on 86
organisations with immediate effect in the
wake of the Al Shabaab terror attack on
Garissa University.
The move was followed on Saturday
by Kenya’s Insurance Regulatory Authority which issued a circular to all insurers
and reinsurers operating in the country.
They were ordered to cancel all policies
with the 86 listed firms with immediate effect.
‘FERTILE GROUND’
At the same time, the government is
ordering the clear out of some refugee
camps in the north of the country, fearing
they maybe fertile ground for the terror
group. However, locally, people are
reporting that it is too late for that because
the terrorists already have papers to be in
the country—Kenya has a large legitimate
Somali community.
There is also a fear that Al Shabaab
has successfully been recruiting among
Kenyans themselves.
A few months ago, Nairobi was voted
Africa’s most attractive city for Foreign
Direct Investments (FDI) and ranked
seventh among the continent’s top 20
cities of opportunity, according to a survey
by PricewaterhouseCoopers.
After the early April terrorist attack
by the Somali-based Al Shabaab terrorist
group on Garissa University where more
than150 students died, will Nairobi
still hold the lead? Some analysts say
yes, although the immediate effects on
the economy, especially cancellations by
foreign tourists, have been felt.
‘ELECTION JITTERS’
Between 2001 and 2002, the year of the
Kikambala terror attack at the Kenyan
coast when there was a failed attempt to
shoot an Israeli airliner and a successful
attack on an Israeli-owned hotel in Mombasa where 15 people died, FDI inflows
grew near five-fold to $27.7 million.
“It is also important to note that both
2002 and 2013 were election years that
typically send jitters amongst investors and
decelerate appetite towards the economy,”
said Mr Makarov.
“The Garissa incident is also likely
kenya: Turn to page 2
Historic Nigerian vote sees Buhari oust Jonathan
Billie McTernan
[email protected]
[lagos]—Nigeria’s presidential election
marked an important moment in history for the west
African nation—the first time an incumbent administration
was voted out at the polls.
President-elect Muhammadu Buhari, under the All
Progressive Congress (APC) banner, secured 15.4 million
votes against 12.8 million for sitting president Goodluck
Jonathan of the People’s Democratic Party (PDP).
Originally scheduled for 14 February, the elections
were postponed for six weeks until 28 March, as security
services said they could not ensure safety during the
elections due to insurgency in the north east of the
country from terror group Boko Haram. Chairman of
the Independent National Electoral Commission (INEC)
Attahiru Jega therefore announced a new date for the poll.
DELAYED VOTE
Despite speculation on why the elections were actually
postponed—Boko Haram has been a threat for six
years—they did indeed go ahead on 28 March but
stretched to 29 March in some parts of the country
due to malfunctioning biometric card readers at some
polling units. As the results were transmitted to INEC
headquarters in Abuja from the 36 states, the country
sat close to its radios and television screens to hear the
announcements.
Reports of violence in parts of Rivers State threatened
to spoil the course of the election. INEC chairman Jega
displayed calm in the face of an outburst from former
Minister of the Niger Delta, Peter Godsday Orubebe.
Mr Jega articulately dismissed Mr Orubebe, gaining
popularity from Nigerians across political lines.
As the counting began, APC’s gains were clear.
Ahead of the official announcement, President Goodluck
Jonathan called president-elect Buhari to concede loss
and congratulate him on his win.
President Jonathan headed the country for one
four-year term, after winning the 2011 election, having
taken over as president in 2010 after late President Umaru
RISK FRONTIERS
SOUTHERN AFRICA
Understanding
risk management in
today’s global economy
NIGERIA: Turn to page 2
Muhammadu Buhari
23 JULY 2015
CRESTA LODGE, GABORONE, BOTSWANA
A one-day conference examininG the following key
issues through a mix of presentations and roundtables:
n T
alent, training
and development
n Cyber risk and insurance
n Political risk
n
n
n
n
egulation
R
Financial risk insurance
Cross-border trade
Counterparty risk
SPONSORED BY:
[email protected]
Continued from Page One
2
NEWS
Risk managers at IRMSA to sit first formal
professional exams on African continent
Liz Booth
[email protected]
[johannesburg]—Risk managers
in South Africa have been invited to
sit the first formal risk management
qualifications in June this year.
The Institute of Risk Management
South Africa (IRMSA) has launched
the exams as a first step towards a
formal certification system for risk
managers across the region. Gillian
le Cordeur, CEO of IRMSA, said the
June sitting followed a pilot exam last
November.
“We were delighted with the
response to that pilot exam,” she said.
“The pass rate was 62%. We had more
than 250 people applying to sit the
test. We chose 40 candidates, of which
34 people actually sat the exam.”
Ms Le Cordeur said: “We were
determined that the pilot should be a
fit test and that it should not be easy.
It is about creating a standard and we
feel the pilot succeeded in that.”
There were no nasty surprises
in the test results, she added, but it
proved to candidates that they needed
a combination of a body of knowledge
and study to pass the test. Ms Le
Cordeur said the results, however, had
reflected the need to study and apply
practical knowledge.
“Thirty-eight per cent of people
who took the test did not pass and
it was a mix of those who have been
in the industry for [various] amounts
of time. No one can assume this will
be an easy pass, they will all have to
apply themselves.”
The board exam, to be taken on
30 June, will be the first Certified Risk
Management Practitioner paper, with
entries closing last Friday (10 APR).
“Entrants will have to study but
also will need to know how to apply
their knowledge—something they can
only have gained through practical
experience,” Ms Le Cordeur said. “If
they can apply their knowledge, then
they should be able to pass.”
As with the pilot exam, there will
be four different qualifying criteria, to
allow for as many people as possible
to be eligible. As there have not been
any previous formal qualifications in
Africa, there has been no set pattern
for practitioners to follow. Some have
chosen overseas qualifications, some
have graduated from local universities,
while others have worked their way
through organisations without any
NIGERIA:
Delayed election surprise
CONTINUED FROM PAGE ONE
Musa Yar’Adua passed away in office.
Under Jonathan’s watch, corruption
was rampant—most notably the failure of
the Nigerian National Petroleum Company to
account for $20bn in oil revenues. The drop
in the oil price from June last year had a big
impact on the country, where the commodity
accounts for 90% of exports.
The security crisis in the north east caused
by attacks from Boko Haram has left more
than one million internally displaced people and
killed thousands during the past six years. Many
analysts think the president-elect’s background
as a former major general in the military will
help quell the threat from Boko Haram.
Murtala Touray, of IHS Country Risk, said:
“Buhari’s presidency raises the prospect of
reform in the public sector to reduce corruption
and an increase in government revenue
generation capacity. However, Buhari will face
significant challenges in implementing change
given the vested interests, culture of corrupt
practice and aversion to compliance.
“Buhari’s victory is almost certain to result
in contract renegotiation and cancellation in
some cases, following corruption probes in
KENYA:
Al Shabab threat grows
CONTINUED FROM PAGE ONE
to be eclipsed by the ranking of Kenya
among the projected top 10 fastest
growing economies in 2015 according to
Bloomberg and the hosting of the Global
Enterprise Summit which will be attended
by the USA President Barrack Obama
in July 2015. Having said that, the
incident in Garissa highlights the security
challenges facing Kenya which will have to
be addressed by the government to ensure
growth continues to accelerate,” he said.
Kenyan global scholar Mwangi
Kimenyi of Brookings Institution and
advisory board member of the School of
Economics, University of Nairobi said
there will be an immediate effect on
tourism cancellation and a long-term risk
of negative perception of the country.
“Kenya has borne the brunt of the
group’s terror activities, which have had
serious adverse consequences such as loss of
life, negative perception about the country
that has impacted tourism, and the
general investment climate,” said Professor
Kaimenyi.
“I still believe that the international
community continues to grossly
underestimate Al Shabab’s capacity to
export terror and thus maintains only a
limited focus on the group than what is
necessary to weaken it. In part, I think this
is because the international community
considers the group’s activities a local
east African problem and unlikely to pose
a serious threat to the interests of other
nations including those of the west,” he
said.
Media reports suggest that tourist
cancellations were affected in Mombasa
and Masai Mara, Kenya’s tourism gems.
Already, more than 30 hotels have
been closed since last year because of
terrorist attacks in the coastal region and
the recent attacks will make the situation
worse, hoteliers said.
“These attacks in Garissa simply sealed
our fate. The situation will become worse
than we anticipated as we go into the
tourism high season of July and August,”
said Mohammed Hersi, the chairman of
the Kenya Coast Tourism Association.
“It seems we might have to go further
formal qualifications beyond school.
IRMSA has always intended that
this first level of qualification would
be followed by a second, tougher
qualification. The second exam will be
aimed at postgraduate level.
As with the Certified Risk
Management Practitioner, IRMSA
will run a pilot exam to be held
in November. Entries will open in
May or June. Ms Le Cordeur said:
“I don’t think the pool of candidates
will be as big, purely because it will
be more demanding and will require
practitioners to have got to a higher
academic level.”
The exams are part of a growing
IRMSA programme for members. Ms
Le Cordeur is delighted at the way the
training programme is developing.
“We have a really packed programme
for this year and will have training
events for the first time in Durban, as
well as events in Cape Town.
“The next step is to grow in
southern Africa rather than just South
Africa.” Ms Le Cordeur said IRMSA has
appointed an education development
manager, who started with the
organisation at the beginning of the
month (APR) and will be developing
a strategy for the Association.
Gillian le Cordeur
sectors including power, bulk fuel distribution,
defence and infrastructural projects. The
investigation raises the risk of suspension of
arrears payments to fuel distributors.
“Jonathan’s concession mitigates the
severe risk of post-election violence that
would have resulted in the loss of thousands
of lives and extensive property damage, as
was the case in April 2011 with more than
800 deaths when Buhari refused to concede
defeat. However, a Buhari victory could still
unleash significant unrest in the oil-producing
Niger Delta, with the potential to disrupt oil
and gas operations and exports in the event
the amnesty programme is not renewed and
the new government cancels security contracts
with former militant leaders.”
Buhari and the APC’s reach grew in this
election, not least because APC governors
secured 19 of the 28 states that held elections.
The PDP won eight, while at the time of writing
Taraba’s results were not finalised.
In Lagos—which contributes 25% to the
country’s GDP—the APC candidate, Lagos
State civil service veteran Akinwunmi Ambode,
secured the governorship.
A former military leader of the country in
the 1980s, president-elect Buhari steps into
office on 29 May. Nigerians will be watching
keenly to see if he lives up to his promises. If
he does not, they know they have the power to
vote him out in 2019.
Meanwhile, Fitch Ratings has revised
Nigeria’s long-term foreign and local
currency issuer default ratings at BB- and
BB respectively. Among its rating drivers,
Fitch cited potential transition issues following
the election.
Other factors included significant erosion
of fiscal and external buffers and lower foreign
exchange reserves. Fitch did not expect savings
to be rebuilt significantly by the end of 2016.
It concluded: “Economic performance
is likely to weaken, although non-oil growth
will remain robust. Real non-oil growth is
forecast to slow to 5.5% in 2015, from 7.4%
in 2014 and an average of 5.6% during the
past five years. Non-oil growth will be hit by
the devaluation of the naira and election-related
uncertainty, but will be less impacted by fiscal
consolidation due to the small size of the
government.
“Reforms in the power and agricultural
sectors should continue to support underlying
momentum. Exchange rate devaluation is
forecast to push inflation into low double digits
for the first time since 2012.”
and lay off staff, because we may not
sustain even this reduced wage bill.”
Investors will however have been
assured by the improving response to
terror attacks by the Kenyan authorities
and the rising security awareness among
Kenyans shocked by the growing scale of
Al Shabaab’s attack fatalities. However,
Calisto Ogaye, MD of Continental Re’s
east African operations, said people in
Kenya are nervous of where an attack may
happen next. Government initiatives to try
and boost domestic tourism to Mombasa
to replace foreign visitors has not really
worked, for example, he said.
“Kenyans are choosing to go inland
rather than to the coast and an initiative
to give businesses tax incentives if they pay
for their staff to take coastal holidays has
not taken off.”
Beyond that, as insurers, there is an
extra alert for the moral hazard. “We have
seen it before when tourism numbers are
low, there is an added risk of fires at the
hotels. It is a particular problem for the
coastal properties because so many of them
are thatched,” he explained.
CLOSING SOON: Last chance to enter the CRA survey
Commercial Risk Africa is polling risk managers
across Africa to gauge their views on political
risk, financial risks
and to see how
risk management
has moved up the
boardroom agenda.
Commercial
Risk Africa will be
publishing the
results as part of
the annual Africa
Risk Frontiers survey
at the end of May.
The poll will take a
very short time to
complete.
Liz Booth, Editor of
Commercial Risk Africa, said: “We are hoping as
many of our risk manager readers as possible
will complete the
short survey. We
would like to
build a unique
picture of how risk
management is
changing across
Africa and this is a
chance for you to be
directly involved.”
n To make sure your
voice is heard, please
click on: http://www.
commercialriskafrica.com/
rfpoll2015/
NEWS Ebola | Africa Re deals | WEF | News in Brief
3
Cost of Ebola outbreak still emerging in
Liberia as first insurance payouts made
Liz Booth
[email protected]
[monrovia]—The first insurers
have started to pay out to the
beneficiaries of victims of the recent
Ebola outbreak in Liberia.
Omega Insurance has paid up to
L$400,000 (L84=US$1) per policy
to those who were caught up in the
disaster.
Liberia is waiting to see if the
outbreak is finally over after another
victim emerged. The 21-day incubation
period is due to end this week and the
country is hoping no more victims are
discovered and be declared Ebola-free.
In the meantime, Charles
Ananaba, Managing Director of
Omega Insurance, said the company
has paid out on about six group life
policies. Alongside these first insurance
payments, the government is paying
up to $5,000 to the families of any
medical workers who died.
“It is a drop in the bucket,” said
Mr Ananaba “but is better than
nothing.” He said his employees
had mostly escaped the outbreak, although the son of one of
the underwriters, who was a medical worker, had died. A former
employee had also lost his life.
The outbreak had come at a huge
economic cost, said Mr Ananaba.
His own firm had managed to keep
operating, although the offices had
opened for reduced numbers of hours
and staff worked a three-day week.
Despite this, he said, he has
managed to keep paying his staff—
unlike many other businesses, which
were forced to close down.
One group of employees affected
badly were teachers as schools and
universities shut for six months and so
far the government has not paid the
staff for the time missed. Not only has
this cost the country in terms of the
lost education for students, said Mr
Ananaba, but it has had a knock-on
effect for the local economy as so many
workers have lost significant portions
of income.
Business leaders, he said, are
worried that there may be a spike in
levels of corruption as workers look
for other ways to plug that gap in
income.
Meanwhile, speaking at the
Continental Re CEO Summit in South
Africa last week, Dr Femi Oyetunji,
Group Managing Director/Chief
Executive Officer of Continental
Reinsurance, cited the Ebola outbreak
as an example of why it was vital
business leaders across the region
communicate more often. “Our
governments were slow to react,” he
says, “but I believe as business leaders
we should be doing more.”
Continental Re intends to launch
a 24/7 communication tool so that in
the future, something like Ebola would
be flagged as an issue from the first
day of the outbreak, giving business
leaders a chance to push for a quicker
government reaction.
“We have an important role in
issues affecting our continent,” he said.
“What started out as a small outbreak
in Guinea became an epidemic.”
n F
or more on the CEO Forum
see p20-22
Africa Re continues to grow following two global investment deals
Liz Booth
[email protected]
[lagos]—In less than one
month, Africa Re has signed two
agreements with two leading global
investors. The latest was signed on
25 March, 2015 with Fairfax Financial Holdings, which paid US$61
million to become a new shareholder of
Africa Re.
Fairfax has acquired a 7.15% stake
and a seat on the Board of Africa Re.
It is engaged in property and casualty
insurance, reinsurance and investment
management.
The new strategic partnership with
Fairfax, after the recent entry of AXA in
February 2015, has strengthened Africa
Re with a US$122 million capital. It is
also a clear strategic move intended to
achieve strong business partnerships
with global industry players.”
Corneille Karekezi, Africa Re
group managing director / chief
executive officer, stated: “We will
work together to strengthen our
positions in the reinsurance market
with regard to product development,
underwriting expertise, human capacity
development, actuarial services,
enterprise risk management, corporate
governance, claims management and
investment.”
He added it was “a great
development
for
Africa
Re,
demonstrating the maturity of the
company, its commitment and ability
to strategically position itself in the fast
changing and competitive landscape
of the international reinsurance
industry.”
The shareholding structure of
Africa Re has changed over time from
a pure multilateral institution in the
1970s and 1980s to a diversified
shareholding comprising 41 African
states (34%), more than 100 African
insurance and reinsurance companies
(33%), the African Development
Bank (8%), IRB-Brasil Re, a leading
Brazilian reinsurer (8%), AXA, the
global leading French insurer that
joined recently with a 7.15% stake
and Proparco, a branch of the Agence
Française de Development.
Until recently, development
finance institutions (DFIs), including
the International Finance Corporation
(IFC), member of the World Bank
Group, DEG (branch of the KfW bank)
and FMO (Dutch development finance
organisation) constituted the core of
the non-African shareholding capped
at 25% of the capital of Africa Re.
Fairfax has acquired part of the shares
put back by those DFIs that invested
in Africa Re capital in 2004 and are
exiting in accordance with a put option
agreement allowing them to exit after
the elapse of their investment horizon.
Meanwhile, Africa Re has posted a
net profit of US$118.50m for the full
year 2014 compared to US$84.80m
in 2013, representing an increase of
39.74%.
The performance was driven by
strong underwriting profit and steady
investment results and was 7.37%
higher than the Corporation’s five-year
plan projections.
Gross written premium grew by
7.02% from US$670.46m in 2013 to
US$ 717.53m.
The growth trend continues to
be impacted by the depreciation of
the major transaction currencies of
the Corporation and a competitive
operating environment.
The Corporation attributes the
good performance to increased income
from treaties as a result of additional
shares secured during treaty renewals.
An improvement of loss experience in
almost all classes of business (energy,
fire/engineering, life, marine and
motor) which led to a drop in the
net loss ratio for most production
centres, also contributed to the positive
results.
Income earned by the Corporation
from investment and other sources,
including interest on reinsurance
deposits and fee income, increased
by 8.84% to stand at U$50.50m
compared to US$46.40m in 2013.
Investment performance continues to
be driven mainly by the equity and
bond markets. Currency translation had
a negative impact on the investment
income.
On an annualised basis, the return
on investment was 4.78% compared to
4.53% as at the same period last year.
Underemployment, food and disease top Sub Saharan Africa’s risk list
Gareth Stokes
[email protected]
[johannesburg]—The United
Nations (DESA 2014) estimates that
more than two-thirds of the world’s
population will live in cities by 2050,
led by Africa and Asia. It estimates
that 56% (currently 40%) of Africa’s
population will be urbanised by that
year.
The mass migration of people
contributes significantly to the
global risk landscape because the
majority of the urban populations in
developing economies live in slums
with inadequate sanitation. Rapid
urbanisation and associated risks are
therefore “top of mind” among Africa’s
risk managers. They have their work cut
out to mitigate the myriad risks their
respective country markets face, while
paying close attention to the increasing
interconnectedness of global risks.
Interplay between risks is illustrated
by the recent outbreak of Ebola in
Gambia, Liberia and Sierra Leone.
“The virus has broken out on many
occasions in the past three decades, but
infections have usually been isolated,”
said Christopher Gilmour, an analyst
at Absa Investments. “The main
differentiating factor this time around
is the high degree of urbanisation.”
Rapid urbanisation—a global
NEWS IN BRIEF
Global natural
catastrophes down
[zurich]—Swiss Re has reported total economic losses
from natural catastrophes and man-made disasters were
around US$110bn in 2014, with global insured losses
of around US$35bn in 2014, below the US$64bn
average of the last 10 years. Swiss Re said there were
189 natural catastrophes worldwide last year, one of the
lowest numbers in a single year. However, it warned
severe thunderstorm losses were trending upward.
Disasters cost the lives of some 12,700 people in 2014.
trend—acts as an accelerant for the risk
of the spread of infectious diseases. It
places strain on infrastructure, which
in turn creates power, sanitation and
water crises and contributes to social
unrest. Poverty and unemployment,
meanwhile, contribute to rapid
urbanisation as rural communities
migrate in search of job opportunity,
causing the cycle to repeat.
Mr Gilmour observed that South
Africa’s struggles with power and
water provisioning are a stark warning
that countries are unable to absorb
the migration from rural into urban
areas. He suggested that governments
could mitigate urbanisation risks
by committing enough capital to
infrastructure projects. “A well managed
infrastructure programme could address
unemployment and water and food
crises, as well as improving the outlook
for national governance,” he said.
Risk managers in Sub-Saharan
Africa are particularly concerned
with the region’s ability to tackle
unemployment or underemployment,
food crises and the spread of infectious
diseases, while north Africa has singled
out water crises, profound social
instability and interstate conflict as
their primary concerns. These focuses
are unsurprising given the different
challenges exhibiting in each region
during the past few years.
The World Economic Forum’s
Little prospect of reducing
economic losses
[sendai]—Meanwhile preliminary results of a catastrophe
modelling study presented at the Third UN World Conference
on Disaster Reduction showed little prospect of reducing
economic losses from present levels of US$240bn per year.
Dr Milan Simic, Senior Vice President of AIR Worldwide,
said the study normalised the economic losses from major
natural disasters across the last 20 years and found they
oscillate around a baseline value of US$240bn.
Kenya shilling set to weaken
[mombasa]—Kenya’s shilling is set to weaken from a more
than three-year low as a drought curbs output of its tea, which
Global Risks 2015 report, now in its
10th edition, sheds light on the
risks that are “top of mind” among
global risk experts by considering
28 predetermined risk events and
then ranking them by likelihood
and impact, before considering the
interconnectedness of risks globally and
regionally.
The latest report reflects on the
emergence of geopolitical risks over
economic risks in a world that is more
concerned with interstate conflict
(Russia/Ukraine for example), the
failure of national governance, and state
collapse or crisis, than it is with fiscal
crises or the risk of an energy price
shock.
is Kenya’s largest export product, according to a report from
Bloomberg. Factories in the southwest were reported to be
cutting back production, as sales in Kenya’s largest auction in
Mombasa dropped 27 per cent last month (MAR). The shilling
is forecast to weaken about 2.5 per cent in the next year.
SA TAX LAW LEADS TO RANGE OF BENEFITS
[johannesburg]—Hollard Life has launched a new range of
income protection benefits, coinciding with changes in tax
legislation. The company said the new products will offer a
flexible range of options. It explained the changes in South
African legislation means premiums will no longer be tax
deductible, but benefit payments will be tax free. This means
advisors should review client portfolios.
COMMENT
4
NEWS
Nigeria ‘cash-before-cover’
—regulator confident
In or out?
T
hreats to business do not
necessarily come in big packages.
Things that seem innocuous or trifling
can play a major disruptive part. Take the traffic
jams in Nairobi, for instance. When one risk
manager recently put that in his top three risks for
the year, others looked surprised.
But he explains that the increasingly bad traffic
usually results in at least one person failing to make
a meeting—and if that is the decision-maker then
the day is over before it has begun.
Likewise, the issue of visas. Recently,
governments have increased their scrutiny of
incoming visitors—for whatever reason. The result:
business leaders are missing crucial meetings. How
can you agree and sign a contract face to face when
you are not allowed in the country or your passport
has been stuck in an embassy for four weeks?
In or out? That was the question on the agenda
when a group of insurance CEOs met in South
Africa last week. They were discussing capital
flight and asking whether it was time for greater
protectionism for the local insurance markets.
They also considered sustainability in the
insurance sector—something that is equally crucial
in any business, whatever its size.
In Ethiopia, another group of CEOs were
meeting to discuss the insurance industry, as well as
infrastructure concerns. Again—in or out? How do
local insurers ensure they increasingly play a role in
such projects, to the benefit of the local economy?
In or out? That was also the question being
asked in Nigeria recently. Should Goodluck
Jonathan remain in or should Muhammadu Buhari
push him out? The voters decided in favour of
Buhari and, in a move seen as hugely important,
Jonathan quickly conceded defeat.
In that simple telephone call, he ended fears
of riots and violence in the wake of the result
and ended concerns that the results would be
challenged. Nigeria is in a transition period now but
Liz Booth
[email protected]
[addis ababa]—The Nigerian
the optimism is already palpable. People voted for
change and their expectations are high.
After re-basing last year, Nigeria is Africa’s
largest economy and, despite the weakening oil
price, there is confidence that it will continue to
grow. For risk managers operating in the country
there are plenty of challenges, not least from the oil
price impact and, for those with northern operations,
the security risk posed by Boko Haram.
Sadly, the terrorists have struck again in Kenya
with the shocking attack on the University at
Garissa. Confidence has been dented. Kenyans admit
to fear that there will be another attack and that
they will be caught up in that.
But there is relief that the government has
reacted fast. Not just with a physical response
but with financial sanctions too. Some 86
organisations have been subjected to sanctions
and the financial institutions have been told to
end all business dealing with them immediately.
Sanctions are a tricky issue for businesses and they
do pose a major risk.
In the past month, I have continued to meet
with risk managers across the continent as part of
our annual survey—and online responses are still
coming in. We will close the survey at the end of
April and you will see the results for yourself at the
end of May.
It has been extremely interesting—and
enjoyable—meeting so many of you and is definitely
something we will continue to do in the years ahead.
In the meantime, our various discussions will be
informing the agenda for our three African events
this year—covering Southern Africa, East Africa and
West Africa. I do hope you will be able to join us in
what are building up to be interesting seminars with
some exciting speakers already lined up.
In the meantime, enjoy reading this issue!
Editor
Liz Booth
+44 [0] 1263 861 676 [w]
[email protected]
Liz Booth
Editor
Commercial Risk Africa
regulator has hit back at insurers
and reinsurers concerned that the
local content regulations and cash
before cover rules have had some
unintended consequences.
Critics of the cash before
cover approach were worried that,
short-term, it was causing a dip
in insurance buying among those
who had been used to paying for
cover across the year.
Speaking exclusively to
Commercial Risk Africa while
attending the Zep-Re CEO Forum
in Addis Ababa, Fola Daniel, the
Insurance Commissioner at the
Nigerian regulatory authority
(Naicom) said the rules did
provide for spread payments.
He said: “I am sure there are
some elements of the market
which benefited from the old
approach but they are learning to
operate under the new system.”
Mr Daniel said the biggest
buyer of insurance in the country
is the government. It too, he said,
had had to learn that without
premium payment, there would
be no cover. Although it took a
while, he believed the new system
is benefiting insurers as a whole,
providing more certainty in terms
of cash flow.
“Government departments
spend up to US$80m in
premiums. They have been
given an incentive in the form of
discounts for paying on time. And
it has worked,” said the regulator.
Mr Daniel said the biggest
concern was the aviation sector—
airlines being unable to fly without
insurance in place, but again they
have quickly adapted to the new
rules.
[email protected]
SENIOR REPORTER
WEst Africa
+44 [0] 7894 718 724 [m]
Billie McTernan
[email protected]
[email protected]
PriCE
GBP :
£25.00
USD
$42.50
EUR
€31.25
KES
KSh36
NGN
N6875 65
ZAR
R465
ca.com
Billie Mcte
rnan
For commercial opportunities email
[email protected]
Oil prices
and electi
ons domin
ate African
commercialri
as a conseq
uence of the
skafrica.com
low
of extremist
groups in Africa oil price. The effectiv
eness
amplified in
SUB SAHARAN
of oil price
afflicted countri and the Middle East will
the largest
AFRICA CONTINU
uncertainty
be
absorb econom
number of
es that lack
ED TO RECORD
and politica
downgrades
the resilien
ic shocks
map from
Paul Domjan
l instability.”
ce to
in the latest
Aon for 2015,
The map illustrat .
political risk
Insights, added: , Managing Director,
as econom
increased.
es that 2015
business environ
Roubini Country
ic and
challenging
However, the
will be a particu
proud to continu “Roubini Global Econom
year for oil
picture is mixed political risks
with improv
(Guinea, Liberia ment in the most affl
producers
ics (RGE) is
already have
ements in
across the
icted countri
in Africa, several larly
During 2014, e its partnership with
souther
and Sierra
high or very
region,
other weakne
es
Aon for its
Leone).
of which
political risks
high
Tunisia and
The report
sses in parts n African countries offset
clients.
particularly
found: “Institu
in
Morocco, which country risk ratings.
of west Africa.
by
Aon has just
supply chain
in oil-exporting the emerging markets
Egypt,
tional quality
benefit from
should otherw
unveiled its
disruption
rose,
regions.
and risk of
cheaper oil
which portray
“The quarter
ise stand to
2015 Politica
was already
and the epidem
imports, face
risks becaus
ly updates
s political risk
high in
l Risk Map,
ic
the country
increased security
e of power
to the risk
the list of politica
in emergin
and put extreme has exacerbated these these countries
ratings
icon scores
g markets.
Matthew Shires, vacuums in Iraq, Libya
and
vulnerabilities
allowing investo highlight developing
Topping
is the increas l risks facing emergin
and Syria.
Head of Politica
governments. pressure on local health
risk trends,
“By using the
rs
g market investo
ing
Although the
systems and
l Risk at Aon,
to better hedge to respond quickly
latest data
countries such instability in already
rs
and
to
epidemic seems
deterior
said:
and analytic
been contain
fragile oil-prod
their exposu
map helps
as Iran, Iraq,
s, the politica
opportunities.
organisations
re or take advanta ation and
ed to these
to have peaked
ucing
Libya, Russia
institutions
l risk
determine
Once again,
investment
and Venezu
will be long-las countries, the damage
their emergin
of combining
the map demon ge of new
strategies.
ela,
on
ting.”
g
Busines
market
RGE’s
monitor their
Turning to
strates the
ses need to
country analysi
with Aon’s
exposure to
constantly
s and benchm power as Boko Haram Islamic extremism, Aon
expertise in
political risk,
country risk.”
arking
said groups
and Al-Shab
such as the
Looking at
such
political risk
aab will continu
impact
Sub Sahara
in Nigeria and
said the Ebola
n Africa in
their neighbo
Somalia respect e to increase
more detail,
outbreak exacerb
urs Camero
ively, as well
ated an already Aon
on, Kenya
as
and Uganda
challenging
.
[LONDON]—
RISK FR
ONTIER
N AFR
S
SOUTHER
U n d er
risk
ICA
sta n d
in
manage
g
today’s
global ment in
econom
y
events@c
While every care has been taken in publishing Commercial Risk Africa, neither the publisher nor any of the contributors accept responsibility
for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents. Editeur Responsable: Adrian Ladbury.
AFRICAN
RISK &
INSURAN
CE MAN
AGEMEN
T NEWS
INDUSTR
Falling prices Y FOCUS—Oil
& Gas:
producing may already be impac
oil
ting those
parts of Africa but what are the prospe
where explor
cts for those
uncovered
deposits worth ation has only just
exploiting?
....................
20–21
& Liz Boot
news@comm
corruption,
h
with risk manag
ercialriskafric
Kenya and
a.com
ers in Nigeri
South Africa
[LAGOS &
as an ongoin
all citing corrup a,
“The
LONDO
tion broad. problem is that politic
ACROSS Africa N]—RISK MAN
only is it g risk to their busine
”
al risk is so
impacting
sses.
are increasingly AGERS but
the daily operat Not
by growin
also the
Peter Mulw
concerned
g
ions East
a Kioko, Risk
Saharan regionpolitical risks across
Africa, Terry appetite of investors.
African Brewe
Manager at
In
the Sub
.
ries, added
CGF Resear Booysen, Executive South dynamics
Commercial
Some civil
: “Political
can
Director,
society
risk manag Risk Africa has been
uncertainty ch Institute, put
that unpred change so quickly
criticised govern
ers
and it
political
ictability that
and instab
ment for the organisations
views on a across the region asking his list of risks,
It can create
ility
and urged
causes the is
at
postponemen
the top
for
voters
uncert
risk.
while Nico
appear to haverange of risks. Politic their Executive
exercise their to not be discouraged t
Snyman, of or the fiscal framewainty around regula
Offi
al
tion
and
ork.”
list of concer remained at the top risks stressed that cer of Crest Adviso Chief
were concer right to vote. Other
In
Nigeri
ry Africa
ns, with less
of their
analysts
the problem
a,
responding
lead to tensioned that the delay
starts at the , to nervousness risk managers
saying the than 10% of those fraU
admit
top. electio
around the
risk has not
in the past
there have n on the ground. would
d faCtor
ns. Adeba
impen
year or has
changed
been spurts
Though
ding
yo Adebe
decreased.
In Kenya
Manager at
the campa
of violence
Political
shin, Risk
,
ign
areas, includ risks include a numb
for Intern Agnes Mbaire, respon
agitations MTN Nigeria, saw
elections has period, the road during
al
and
politic
to the
al
motivated ing the risk of politicer of and Comp Audit, Risk Manag sible three concer terrorism as one of
are concernedbeen mainly calm. Nigeri
liance
violence and
ns and
his top
ement
ally- risk
ans
exchange
see a concer about security and
remains a at Postbank, said fraud rising fast in the fears political risks
rates, sanctio riots, foreign
want
ted
major challen
are
effort to ensure
to
latory risks.
manag
country.
ns and
The decisio country.
it for the
regu- Kirika ers operating in Kenya ge for risk Nigeri
n in Februa
Goodluck
However,
ry
During
, Head of
Jonathan
Risk Manag , with Joan electio a’s presidential and to postpone
risk manag
uncertainty
Insurance
Haram has Mr Jonathan’s tenure
gubernatorial
ement
ns—o
ers
Regul
made some
,
elections or caused by forthc say that it remain atory Authority, at the scheduled ne week ahead
attacks, from
of its most Boko
date—
of their governorships.
adding to
oming
horrific
s a culture
the risk
change is
200 girls from the kidnapping of more
problem.
many observ did not come as a surpris
Gilbert
The electio
the main of governmental
than
Uncertainty
cause
Protecht, also Mwalili, Risk Manag
Independent ers and participants. e hotly contes ns were set to
State last April the town of Chibok
in Borno
ted race
is impacting for concern. of
er
put political
Electoral Comm
be a
The
to the mass
ness of foreign
his concer
risks at the at already behind
destruction
the willing
ission was Goodluck Jonath between President massacre of some 2,000
top impor
on
certain countr investors to comm - very quickl ns. “In business, people
January. Presid
people in Bagaand
ted perma the delivery of newly Democratic Party an’s ruling People
y affected by
ies they say.
it to People
ent
are
nent
in
’s
(PDP) and
Jonathan’s
the annou
from
respon
political instab
voters’ cards
Political risk
will
nonchalant
ncement
but Muha ex-military presid opposition outcry se to both events
also includ
that the
organisation react in different ways. ility. were being
caused a public
es the risk
ent
mmadu Buhar
, leading
elections
postponed
may see
One
of others
to
i of the newly General country
All Progressive
see it as a majorit as zero risk, while concerns was unexp because of securit
calling on protests across the
formed
Congr
y PDP
government
ected. Voters
now go to
risk.
had suffere ess (APC). Last year, these threats.
to address
the
d five
presidential polls on 28 March will governors
Chief execut
who crossed defections from
vote, and on
for
Financial Deriva ive of the Lagosthe floor to
11 April for the APC—govern
join the
ors of
based
the potent
tives Comp
any,
ially split votes.states that could now Rewane, said the
reason govern Bismarck
ment gave
PoLitiCaL:
Liz Booth
Turn to page
2
news@
GROUP MANAGING EDITOR: Adrian Ladbury, +44 [0] 7818 451 882 [m], [email protected]
Design services: Alan Booth, +44 [0] 20 8123 3271 [w], [email protected], www.calixa.biz
Commercial Risk Africa is published
monthly, except August and December,
by Rubicon Media Ltd.—Registered office
7 Granard Business Centre,
Bunns Lane, Mill Hill, London NW7 2DQ
COUNTR
Y REPORT
With an electi
—Nig
is very much on on the horiz eria:
on,
foreign invest in a holding patte Nigeria
rn, with
ors biding
their time
............14–
19
Risk ma
n
risks top agers conclude
po
list of co
ncerns fo litical
r 2015
ReporterS: [email protected]
To subscribe email
[email protected]
Commerc
ial Risk A
FRICA
MARCH
www.com
2015
mercialris
kafri
Billie McTernan, Gareth Stokes, Ben Norris, Stuart Collins, Tony Dowding, Nicholas Pratt, Rodrigo Amaral
Rubicon Media Ltd. © 2015
n There will be a full report from
the Zep-Re CEO Forum in Ethiopia
in the May issue
SENIOR REPORTER
East Africa
Steve Mbogo
+254 [0] 722 214 261
GROUP PUBLISHING DIRECTOR
Hugo Foster
All rights reserved. Reproduction or transmission
of any content is prohibited without prior
written agreement from the publisher
“One airline group had been
paying on a quarterly basis but
had never paid on time. Now they
have paid 100 per cent—and the
money came in early,” he added.
“Without receiving premiums,
the insurance industry could not
meet its claims obligations and
that was giving insurance a bad
name. In the past 24 months that
has changed and claims are being
met.”
In terms of the local content
regulations, Mr Daniel said the
rules were not actually that farreaching because they centred on
the oil and gas sector. He denied
suggestions that the rules would
stifle innovation locally, because
insurers could relax knowing the
business had to come to them
first.
Mr Daniel also rebuffed the
suggestion that it hampered
claims payments because so
many insurers were now involved
in every risk. He said the lead
underwriter would always be
the first point of contact for the
insured and would settle the
claim. It was then up to them to
go to the rest of the market for
settlements.
Insureds, he suggested, would
soon choose other insurers if
claims settlements were slow to
materialise. “It is a competitive
market,” he said, “and insureds
have choices. So if there is a slow
payer, then we are not going to
insist the insured uses them in
future years.” Mr Daniel was
confident this would help drive
up standards while the clear
regulatory framework would give
insureds and insurers greater
certainty and confidence.
ommercia
lriskafric
a.com
risks
oiL: Turn
23 JULY
CRESTA
LOD
to page 2
2015
GE, GAB
ORONE,
A one-da
BOTSWA
y con
issues
NA
throug ference exa
mininG
h a mix
the fol
of pre
n Talent
sentat
lowing
ions and
,
key
and devtraining
roundt
elo
ables:
n Cyb
n Reg
er risk pment
ulatio
and ins
n Pol
n
n
itical
Fina
urance
ncial risk
risk
n Cro
insura
ss-bor
nce
der tra
n Cou
SPONSO
nterpa
de
RED BY:
rty risk
The more
co
it is to choo mplex the challen
ge
se the rig
ht insuran , the more importa
ce partner
nt
.
That’s why
more than
half of the
as their trust
Fortune Glob
ed partner.
al 500 ® com
Our office
panies have
in Johannes
Speak to
burg is part
chosen Allia
one of our
experts to
of the glob
nz Global
discover the
Corporate
al Allianz
network in
& Specialty
www.agcs
differenc
more than
e the righ
.allianz.co
t partner
150 coun
m
can make:
tries.
+27.11.2
14.7900
NEWS Continental Re | Ratings | Home loans | Agenda
5
Ratings picture is mixed following fall in oil revenues, fiscal pressure
Liz Booth
[email protected]
[ london ]—The falling oil
price is impacting rating agency
confidence in some African countries.
Among a flurry of rating actions,
Fitch Ratings has revised the Outlook
on Angola’s Long-term foreign and
local currency Issuer Default Ratings
(IDR) to Negative from Stable and
affirmed the IDRs at ‘BB-’. The
Country Ceiling has been affirmed
at ‘BB-’ and the Short-term foreign
currency IDR at ‘B’.
It said: “We expect Angola’s
economy to slow as a result of a sharp
fall in government expenditure,
a shortage of dollar liquidity and
uncertainty about the future
direction of oil prices constrains
activity in the non-oil economy.
Fitch expects growth to moderate to
3.3% in 2015, from 4.4% in in 2014
and 6.8% in 2013.
“The 45% drop in oil prices
since July 2014, which once again
highlighted Angola’s vulnerability
to oil price shocks, is expected to
result in a sharp drain on reserves,
weaker economic growth and rising
debt. Nonetheless, the Angolan
authorities have responded quickly
to sharply lower oil prices by severely
cutting expenditure and allowing
the exchange rate to depreciate, in
sharp contrast to the delayed policy
response in 2008, the last time oil
prices collapsed.”
ELSEWHERE
Meanwhile, Fitch has affirmed
Ghana at ‘B’, with negative
outlooks. It reported: “The IMF
board is expected to approve Ghana’s
US$940m extended credit facility
in April, which should provide
some easing of severe external and
fiscal financing pressures. However,
Ghana’s track record of increasing
spending ahead of elections raises
concerns about the government’s
ability and willingness to meet the
ambitious fiscal consolidation targets
set by the IMF.
For Zambia, Standard & Poor’s
(S&P) has affirmed its ‘B+/B’ Ratings
although the outlook remains
negative on fiscal and external
risks. S&P said “We continue to
believe that Zambia’s institutional
strengths and solid growth prospects
remain sufficient to offset increasing
short-term fiscal and external
challenges.
“However, we consider that
policy-making could be constrained
by political considerations, pre-
venting the final resolution of key
fiscal uncertainties, which could
add to copper-price led currency
depreciation and external pressure.”
Meanwhile,
S&P
affirmed
ratings for Congo at ‘B/B’ with a
stable outlook. It explained “The
ratings on the Republic of Congo
are constrained by low institutional
effectiveness and income levels,
presidential succession risk, high
fiscal, external and economic
dependence on oil, and limited
monetary flexibility.”
Fitch has also affirmed Congo’s
rating, at ‘B+’ with a stable outlook,
reflecting Congo’s strong balance
sheet and positive growth outlook.
Finally, Fitch has revised Tunisia’s
outlooks to stable from negative. Its
Long-term foreign and local currency
Issuer Default Ratings (IDRs) have
been affirmed at ‘BB-’ and ‘BB’
respectively. The issue ratings on
Tunisia’s senior unsecured foreign
currency bonds are also affirmed at
‘BB-’.
DEMOCRATIC MANDATE
It explained: “The smooth legislative
and presidential elections in late
2014 enabled the formation of a
new, democratically-elected coalition
government in early 2015, which
benefits from a large majority (more
than 70%) in a parliament elected
for five years.
“This puts an end to a fouryear political transition process and
lays the ground for better political
stability in the country. Political and
economic destabilisation risk from
social unrest or terrorist attacks
remains significant, however, as
illustrated by the recent attack in
Tunis.”
Continental Re launches specialist construction, property and engineering risk services subsidiary
Liz Booth
[email protected]
[ j o h a n n e s b u r g ] —
Continental
Reinsurance
has launched a new specialist
subsidiary, Continental Property and
Engineering Risk Services (CPERS)
to meet the growing demand for
specialist engineering insurance risk
advisory services, which is currently
driven by Africa’s infrastructure and
construction boom.
The firm said that with Africa’s
investment in infrastructure, rapid
urbanisation, projected economic
growth, rising middle class, focus on
regional integration and improved
governance in many of Africa’s 54
nations, investment in construction on
the continent is on a strong upwards
trajectory. Consequently, the demand
for specialist engineering insurance
skills is also increasing, according
to Mr Lawrence Nazare, Executive
Director of Continental Reinsurance.
“It is imperative for Africa’s
development for African reinsurance
companies to provide the required
specialist insurance skills and
expertise to support efforts to bolster
the retention of African reinsurance
premiums in the continent,” said Mr
Nazare. “For this reason, we have
strengthened our core engineering
capability by enhancing our existing
offering,” he added.
Historically, foreign reinsurance
companies have provided the requisite
engineering insurance advisory
skills and benefited from premiums
generated in Africa.
“The time has come for Africans
to support Africa’s growth by using
local engineering insurance skills as
well as fast-tracking the transfer of
knowledge and training for insurance
companies across the continent to
ensure that Africa strengthens its
capability to support its own growth,”
said Mr Nazare.
The four key functions of CPERS
are: underwriting of engineering and
construction risks in Africa; risk and
advisory services; claims handling
services; and training for the insurance
companies.
Cassim Hansa, a professional
civil engineer and MBA graduate,
with more than 20 years’ experience
in both the engineering and
insurance industries in the US and
South Africa has been appointed
Managing Director of CPERS.
“Insurance professionals in Africa
are hungry for training and unless we
step in and fill the urgent need for
knowledge transfer in the insurance
sector, Africa is at risk of losing the
opportunity to foreign firms by not
developing its own capabilities,” said
Mr Hansa.
CPERS is committed to facilitating
skills transfer and training to develop
a stronger specialist engineering
insurance sector on the continent
Not-for-profit home lender continues its expansion
[johannesburg]—Home Finance Guarantors Africa (HFGA) has
expanded
into Zambia and has plans for further expansion across Africa after
years of successful operations in South Africa.
Ethel Matenge-Sebesho, Head: New Markets, at the not-for-profit
organisation, said the aim is to pave the way for small businesses and
homeowners to get a foot on the property ladder.
HFGA’s model is to take the risk away from the lending institutions
by guaranteeing the top-up part of loans, enabling the banks to offer
100% mortgages.
AGENDA
2015
20-21 April, 2015, Johannesburg
n Project Risk Assessment Training. For more
details email [email protected]
23-24 April, 2015, Sandton,
Johannesburg
n Management Skills for New Managers and
Supervisors prudence@archipaxbsolutions.
co.za
23 April, London, UK
n Africa Confidential is hosting Nigeria After
the 2015 Elections: Which way forward. For
details: [email protected]
5 May, 2015, Johannesburg,
South Africa
n Risk Reporting Training. For more details
email [email protected]
7-8 May, 2015, Johannesburg,
South Africa
n IRMSA Business Continuity Management
Training. [email protected]
12-13 May, 2015, Brighton, UK
n 3rd Africa Financial Services Investment
Conference (AFSIC) 2015. For more
information please contact [email protected]
14-15 May, 2015, Cape Town,
South Africa
n Project Risk Assessment Training—Cape
Town. For more details email nicoleg@irmsa.
org.za
19 May, 2015, Johannesburg,
South Africa
n Managing Risk Management Training. For
more details email [email protected]
24 May, Tunis, Tunisia
n As part of the AIO conference,
Africa Re will be presenting its
first Insurance Awards, with three categories
covering The Insurance Company of the Year;
the CEO of the Year; and the Innovation of the
Year.
24-27 May, Tunis, Tunisia:
n The African Insurance Organisation
will be holding the 42nd Conference and
Annual General Assembly of the African
Insurance Organisation. For more information:
http://www.african-insurance.org/newseventseventitem.php?intID=301
25-29 May, 2015, Johannesburg,
South Africa
n CSR Strategies, PR & Reputation
Management Workshop. [email protected]
28 May, 2015, Johannesburg, SA
n Compliance, A strategic Toolkit. For more
“So often banks will offer people a loan but will want a 10% or
20% deposit. A borrower can afford the repayments but does not have
a cash deposit. We allow the banks to offer 100% loans because we
guarantee the deposits,” said Mrs Matenge-Sebesho.
The company has operated in South Africa for more than 20 years
but has recently expanded into more African countries. It launched into
Ghana, Rwanda and Kenya two years ago and has just launched into
Zambia.
“Our system helps increase access to finance but it also helps
develop housing stock for developers,” she said.
—Liz Booth
details email [email protected]
2-3 June, 2015, Bloemfontein,
South Africa
n Introduction to Risk Management Training
- Bloemfontein. For more details email
[email protected]
8-9 June, 2015, Johannesburg,
South Africa
n Operational Risk Management Training.
For more details email [email protected]
12 June, 2015, Johannesburg,
South Africa
n The Governance of Risk Training. For more
details email [email protected]
19 June, 2015, Johannesburg,
South Africa
n IRMSA Annual General Meeting (AGM).
For more details email [email protected]
23-24 June, 2015, Nairobi, Kenya
n 5th Annual Africa Insurance & Reinsurance
Conference 2015. http://aidembs.com/
insurance_conference/
23-24 June, 2015, Cape Town,
South Africa
n Business Continuity Management
Training—Cape Town. For more details email
[email protected]
by delivering training sessions in
fast-developing regions in Africa. In
2015, CPERS will conduct training
in Harare, Lagos, Maputo, Nairobi,
Gaborone and Lusaka.
More than 200 delegates from
insurance companies have already
attended training sessions delivered
by Continental Reinsurance on
engineering and property risk services
in 2014, in key regions across Africa,
including Lagos, Harare and Addis
Ababa.
CPERS is registered in South Africa
and will operate as a full subsidiary of
Continental Reinsurance.
Continental Reinsurance is one
of a few reinsurance companies in
Africa committed to sustainable
business and corporate responsibility
by signing up to the United Nations
Principles for Sustainable Insurance.
Signatories to this accord commit
to integrating environmental, social
and governance issues into their core
business strategies and operations.
n For more news from Continental Re’s
CEO Summit please see p20 & 22
23 July, 2015, Gaborone, Botswana:
n Commercial Risk Africa will be holding
a one-day seminar for risk managers from
across southern Africa. Contact: events@
commercialriskafrica.com
26-29 July, Sun City,
SOUTH AFRICA:
n The Insurance Institute of South
Africa will hold its annual conference
with the theme ‘Risky business—the
insurance solution’. For early bird
registrations: http://www.redballoon.
biz/ticsa2015/delegate
17-18 September, Johannesburg,
South Africa:
n The Institute of Risk Management South
Africa will be holding its annual two-day
conference. For details, email: admin@irmsa.
org.za
16 November, 2015,
Nairobi, Kenya:
n Commercial Risk Africa will be holding a
one-day conference for risk managers
from across east Africa. Contact: events@
commercialriskafrica.com
DECember, 2015, LAGOS, NIGERIA:
n Commercial Risk Africa will be holding a
one-day conference for risk managers
from across west Africa. Contact: events@
commercialriskafrica.com
6
Takeovers
BEHIND THE NEWS
Trend for Kenyan
mergers and acquisitions
continues to escalate
Steve Mbogo reports from a
Kenyan insurance market buzzing
with takeovers and new entrants
B
arclays Life and Allianz are
the latest new entrants into Kenya’s
now-enthusiastic insurance sector, in a
move expected to lighten the market
for consumers with innovative and
competitively-priced products.
Speaking off-record, a senior official
of Kenyan regulatory agency, the Insurance Regulatory
Authority (IRA), said that Barclays Life has already been given
a licence to start operations while Allianz is in the advanced
stages of being granted a licence.
“The two have opted for Greenfield entry,” said the
official.
Their entry is expected to further fuel the ongoing mergers
and acquisitions in Kenya’s insurance industry, which started
in 2013 but accelerated towards the end of 2014 and early in
2015.
Kenyan insurers have been chided in the past for being
elitist, concentrating more on selling products that are
statutory in nature and focusing on group life insurance to
tap into the employee market, but giving less attention to
individual life and low income earners.
This focus has cost the industry, which is the smallest
compared to other financial sectors in Kenya and has enjoyed
the least consumer confidence compared to others, according
to successive studies.
Global players
The entry of the two additional firms has caused excitement
because they are globally renowned players coming to a
market that is still considered a virgin in terms of insurance
penetration, which now stands at 3.5%, according to industry
statistics.
However, the insurance market has been growing at
an impressive rate of 20% in the past five years, based on
premium growth, according to the IRA—riding on economic
growth, an expanding middle class, improving business
environment, better regulation and rising awareness of the
importance of insurance.
The two new entrants will join another global player,
Prudential Assurance, which has wholly acquired Blue Shield
Insurance.
The deal, completed this year, marks the re-entry of
Prudential Assurance after it exited Kenya in the 1990s, citing
a bad operating environment.
Although the value of the Blue Shield acquisition was not
disclosed, Prudential said it would spend $17m to finance its
operations in Kenya in the next year.
Another global player that made a recent entry into
Kenya is Swiss Re, which bought a 26.9% stake in Apollo
Investments, the holding company of APA Insurance, in the
last quarter of 2014. That stake had previously been owned by
LeapFrog Investments.
LeapFrog Investments has in turn invested $18.6m to gain
control of Kenya’s Resolution Insurance, a specialist health
insurer.
LeapFrog will invest through Resolution Health East
Africa, the holding company for the Nairobi-based insurer.
Yet another globally significant player, Old Mutual,
announced in January that it has bought a 60.7% stake in
Kenyan insurer UAP for $253m.
UAP is the third-largest general insurer in Kenya and the
second-largest health insurance business. It is also the secondlargest general and health insurance business in Uganda.
Old Mutual Kenya chief executive officer Peter Mwangi
said in an interview that UAP would be merged with the Old
Mutual business in Kenya, indicating possible rebranding.
“We are currently awaiting regulatory approvals in respect
of the transaction and hence are not able to discuss much
about the acquisition,” said Mr Mwangi.
“Old Mutual’s ambition on the continent is to become an
African financial services champion and this entails having
an integrated financial services offering in the key markets in
which we operate. The UAP business that we have acquired is
pivotal to us realising this ambition,” he added.
He said the acquisition is based on the positive outlook of
insurance business in east Africa.
“Our outlook is positive. The economies in the region are
expected to experience strong growth in the medium term.
Kenya is actually expected to be the third-best performing
economy in the world in 2015. Growing national income
is a key driver of growth in our businesses so we are very
optimistic in this regard. We are also encouraged by increased
economic collaboration under the EAC, which we believe will
further drive growth in the region. The opening up of the
region is great news for us and makes it easier to do business,”
said Mr Mwangi.
Attractive proposition
Analysts say Africa’s fast-growing economies, improving
insurance sector regulation and an expanding middle class are
some of the biggest drivers of new foreign direct investment
into the industry.
Jubilee Holdings, Kenya’s largest insurer, announced
earlier this year that it plans to buy out smaller insurance
companies to expand its business.
“We shall be making announcements soon,” said Nizar
Juma, Jubilee Group Chairman. “Our aim is to remain
number one, particularly in Kenya, where mergers and
acquisitions have been happening. We are looking for
companies to acquire in the country and region because
insurance is dynamic,” he said.
Corneille Karekezi, Chief Executive Officer of Africa Re,
said the improving ease of doing business in Africa is pulling
in investors.
“There is a growing middle class with higher revenues,
political and economic governance is improving, and there
are regulatory changes in insurance that require openness for
business,” said Mr Karekezi.
Other drivers of new capital inflow into the industry
include disposal of assets by first generation entrepreneurs
and divestments by development finance institutions and
investment funds, which have reached their investment
horizon time.
The latest activity comes ahead of the expected approval
of the Draft Insurance Bill 2014, which requires composite
insurance companies to split their general insurance business
from their life business and restricts individual ownership to a
maximum of 25%, the latter being meant to shake off family
ownership of insurance companies, which has partly been
blamed for the poor management of some insurers.
Analysts from the Standard Investment Bank say a
likely change will also be the revision of minimum capital
requirements for insurance businesses and that low penetration
in Kenya is being seen as an opportunity by the new entrants.
“We believe the low penetration rates present headroom
for growth in the insurance business. Furthermore, anticipated
developments in insurance regulations on ownership and
capitalisation are set to improve the business environment
for insurers. The advancement of technology and distribution
channels has also enabled insurers to collect payments more
efficiently, as well as widen their customer base,” notes the
Standard Investment Bank in an update.
Further activity
There have been more deals in the past 12 months.
Pan Africa Insurance Holdings has bought a majority
stake in general insurance underwriter Gateway Insurance.
The listed life insurer, majority owned by South African
Sanlam, exited the non-life business three years ago when it
sold a 40% share in APA Insurance. APA was formed in 2003
by merging the short-term business arms of Apollo and Pan
Africa.
Saham group director general Giancula Marcopoli said the
acquisition of the insurance company is part of the company’s
growth strategy to increase its footprint on the continent and
consolidate market share in the insurance industry.
Britam acquired 99% of Real Insurance in December 2013
in a cash-and-share swap deal valued at $16.4m.
Metropolitan International, a division of JSE-listed life
insurer MMI Holdings, bought an undisclosed shareholding
in the Kenyan insurer Cannon Assurance for $27.3m. MMI
has operations in 12 African countries outside South Africa,
including in Kenya through Metropolitan Life Kenya.
Kenyan insurance industry leaders say they expect more
mergers and acquisitions this year. “We are anticipating more
acquisitions,” said Sammy Makove, Chief Executive Officer
of the IRA. “Insurance is seen as the next frontier for growth
because penetration is still low, so there is potential for the
market to grow.”
He said activities in the industry are being driven by the
improving ease of doing business in Kenya and the discovery
of oil and gas. “Going forward, premium growth is likely
to accelerate as well as capitalisation, supported by capital
inflows from multinational insurance corporations,” said Mr
Makove.
Tom Gichuhi, Chief Executive Officer of the Association
of Kenya Insurers, is also optimistic about more activities
in the industry this year. “In 2015 we are anticipating more
acquisitions. There is potential for the market to grow,” he
said.
Kenya has 47 insurance companies. While some
analysts said the number is too high for a population of 40
million Kenyans, the regulator, IRA, has declined to force
consolidation of the industry but instead introduced a riskbased supervision model that enables the insurer to take on
risks that can only be supported by its capitalisation.
BEHIND THE NEWS Takeovers
7
trail
On the
expansion
South Africa’s Liberty Group has
been growing fast across the continent.
Liz Booth meets Mike du Toit, who
has spent the past four years as regional
managing director [Strategic Growth]
for Liberty/Stanlib
L
iberty has been growing rapidly
across Africa in recent years, following the
expansion trail of its parent bank, Stanbic.
Mike du Toit, Regional Managing
Director (Strategic Growth) for Liberty/
Stanlib, explains the moves have always
been part of a coordinated approach
between the banking and insurance arms of the business.
It creates synergies and access to markets for the insurance
and has allowed the group as a whole to develop solid
institutions, Mr du Toit says.
“We break ourselves into three zones and fundamentally
we are looking at five pillars—life, health, short term, asset
management and property. Each area has an institutional or
retail structure. Clearly, South Africa is the most developed part
of the business.”
Mr du Toit believes it is very difficult to break into
new markets without that core strength and distribution
opportunity.
He is also clear that the group cannot take the same model
and expect it to work in every market. “We are quite clear
about the fact that every country has to be governed by what
will work in that country,” he stresses.
Another key is the company’s determination not to be
“imperialistic” about its continental spread. “If what we are
doing is not relevant to the market, then we don’t do it,” says
Mr du Toit. “And where we do operate, we use the business
model best suited to the local market.
“For example, in Kenya there are 500 agents but in Uganda
we use bancassurance to access our customers and distribute
through other bulk suppliers.”
Local identity
Mr du Toit’s role has been to reorganise businesses in east
Africa. Liberty maintains the local names of firms, such
as Heritage in Kenya, rather than using the Liberty name
throughout.
“We are always looking for ways to grow the business
strategically,” says Mr du Toit, “and we have formulated 15
tactical approaches. One is acquisition, another is brown field,
and we have joint ventures and fronting arrangements. There
are a whole host of ways to do this.”
He says the bank’s presence in markets gives the short-term
insurance business an advantage in terms of accessing markets
and with geographical spread.
“Insurance can support the proposition of the bank too, so
it works both ways. It also helps in terms of manpower if we
can centralise some of the services, such as human resources
and communication.
“In some cases we might also have centralised actuarial
services or risk management,” he adds.
Looking more broadly at opportunities, Mr du Toit says it is
hard to ignore the opportunities emerging across the continent
at the moment. “Sometimes you may have liberalisation of a
market, for example, and you can’t ignore that opportunity to
build in the market.
“You have to take advantage as and when it appears but,
strategically, we are not trying to go out and paint the continent
blue.”
Liberty has no such ambition, not least, says Mr du Toit,
because it would be impossible to have sufficient resource in
play to do that. “Countries with low insurance penetration rates
are particularly difficult,” he says.
Competition comes from the large domestic players. “It is
not necessarily a question of their size,” he explains, “but of
their capacity to be locally relevant. Of course, there are large
foreign players moving into markets with their large balance
sheets and distribution networks but if they are not locally
relevant it will come to naught.”
Expansion challenges
Speaking personally, Mr du Toit outlines the risks associated
with expanding into new regions: “Each territory comes with
its own risks, those that are ‘normal’ such as market, operating,
legal, fraud etc. And I would say that the two biggest risks an
expanding business faces are strategic and execution: a) does
one have the right strategy for the specific territory? and b) the
right people to execute the strategy with a sense of urgency and
focus?
“I would suggest that one should look at each country and
not regions, since even neighbouring countries can often be
very different environments in terms of customer, regulation
etc.”
He admits there are plenty of other challenges too. Among
those, he says the following would be “top of mind”:
n Lack of available targets for acquisition, which has to be the
fastest way to expand;
n In most territories, a shortage of technically experienced
executive-level resources;
n Local shareholding requirements and finding the right local
partners can also be a challenge as they may often already
be invested in a similar line of business;
n At this point, there is a way to go in consumer
understanding of the suite of products offered at retail level
in the non-banking financial institution space, so it is hard
work getting volume and economies of scale to invest.
Mr du Toit adds: “And from my experience, I think one
of the biggest mistakes some make is assessing market size
and opportunity using macroeconomic statistics. The size of
a population is unlikely to be proxy for the scale of a retail
prospect, if that population is significantly undereducated on
financial services, difficult to reach or has very low disposable
income.”
He continues: “Data at the micro level is often not available
and one has to combine proxy information with experience
or a gut feel. That can be a challenge to sell to international
investors, which is why we often see local businesses move so
much quicker to grasp opportunities.”
Considering how easy it is to overcome those, Mr du
Toit says: “Evidently, it’s not easy, otherwise everyone would
probably be rolling out networks a lot quicker. Therein lies a
fantastic challenge and opportunity for organisations that have
an abundance of passion and a long-term outlook, like ours.
“Like any territorial expansion, the key is to take time to
listen to local guides in whatever shape and form they may
come—i.e. customers, local shareholders, industry players,
suppliers, boards and experienced executives. ‘Learn to
listen and listen to learn’ has to be the strapline for anyone
wishing to expand. Don’t confuse urgency with impatience as
retracing steps to fix and then move forward again comes at an
enormous cost.”
Territorial differences
Looking from country to country, Mr du Toit sums up: “As I
mentioned above, some are very similar, especially in similar
lines of business going through similar channels. Some are
uniform to the extent that they may not occur to the same
extent, same speed or timing (e.g. a reaction to an international
market risk event, as was the case in 2009).
“And then some may be very unique to a country, or
region of a country. For example, does the product or the risk
resonate as a priority with the consumer? Is the subject (e.g.
funeral/death) one that folk are prepared to even discuss?
These cultural sensitivities are very important as they can derail
strategic execution.
“Certain countries clearly have a much quicker take-up of
new technologies and the industry has to be able to keep up,
which is a real challenge when one is looking at how and where
to spend the next investment.”
So often, the message is that Sub Saharan Africa is home to
nearly 50 countries—a message that Mr du Toit says you forget
at your peril if you are embarking on regional expansion.
Keeping you up to date with the latest
Sub Saharan African election news
http://www.commercialriskafrica.com/africaelections
Microinsurance
8
BEHIND THE NEWS
From small
acorns
grow mighty
oaks
Steve Mbogo explores microinsurance
in Kenya—a form of cover that paves
the way for the development of
corporate insurance in the country
M
icroinsurance is the next big growth
area for Kenya’s insurance industry, as formerly
risk-averse low income earners become more aware
of the need to secure their assets and lives, opening
a new opportunity for insurance companies to
improve their cashflow.
A significant number of the country’s 45 insurance companies
have started microinsurance departments, with those that have not
either making acquisitions of pro-low income finance institutions as
an entry point or going back to the boardroom with consultants to
lay a strategy for entry into this emerging class of business.
Among the most recent entrants is Old Mutual Kenya, which
has acquired Faulu Microfinance, a microfinance bank lending
to low income earners. The intention is to enable the company
make entry into low income financial services offerings including
microinsurance, says Old Mutual Kenya CEO Peter Mwangi.
“We acquired Faulu Microfinance with the intention of selling
insurance to Faulu’s customer base. Faulu’s roots in microfinance
allow us to develop our microinsurance capability with a partner
that has a lot of experience in this market segment having been in
it for many years,” says Mr Mwangi.
“Currently, we are working on financial education initiatives
to make Faulu customers aware of our insurance offerings. We are
quite encouraged given the level of sales that has come through so
far,” he adds.
Mr Mwangi sees the growth of microinsurance as being in
tandem with the growing economic fortunes of the country.
“People are earning more and hence saving more. The country
is expected to experience economic growth of between 6% and
7% over the medium term so we expect to continue experiencing
strong growth,” he says.
Meeting demand
Leading insurance companies like UAP, CIC, APA, Britam and
UAP have fully fledged microinsurance departments and are
currently engaged in research and development that will enable
them to release products that meet the specific needs of the target
market.
Key sectors that promise to drive microinsurance penetration in
Kenya include the transport industry, in particular the motorbike
transport sector locally referred to as Boda Boda.
CIC Insurance has come up with a product that retails for
one Kenyan shilling a day, or about $4 a year, that offers personal
accident cover to the motorbike riders, among other benefits.
Another sector driving the growth of microinsurance is small
scale commercial farming, which has taken root in Kenya as the
majority of farmers with smaller holdings opt to undertake farming
as a business, unlike previously when they farmed primarily to
provide food for the family.
For instance, in Kirinyaga County in the central region of
Kenya, a dairy cooperative society has taken insurance for all its
supplier farmers. Premiums are deducted from the farmers’ milk
delivery payments to pay for insurance of their cows.
Chairman of Kirima Dairy Cooperative Society, Samuel
Gachoki Kabiru, says the decision had been made after farmers lost
60 cows last year, worth about $67,000, because of various diseases.
“We want to ensure that our farmers make financial recovery
after loss of their cows so that they are able to purchase new cows
and continue delivering milk and therefore maintain their income
from milk,” says Mr Kabiru.
The society partnered with Majani Insurance Brokers.
The policy covers cattle, goats, pigs, poultry and sheep due to
death arising from: lightning, internal and external injury,
calving and pregnancy complications, fire, windstorm, snake
bites and flooding.
It also covers deaths resulting from diseases of a terminal
nature certified by a veterinary officer, emergency slaughter on a
veterinary officer’s advice, theft of stock in premises housing the
insured livestock or in paddocks or when the animals are in transit
to market, or to a new farm, animal shows and exhibitions.
Marketing manager of Majani Insurance Brokers, Pauline
Mwangi, says more farmers are recognising the value of insurance
and this is driving sales.
“We have noticed a surge in demand for microinsurance among
small scale farmers as they increase their understanding of the
value of buying an insurance policy. This has been done through
education and awareness but, more importantly, meeting farmers’
expectations regarding efficiency in the compensation process,” she
explains.
Other drivers
Savings and Credit Cooperative Societies (SACCOs) provide another
growth frontier for microinsurance products. Some SACCOs have
now been allowed to sell microinsurance products. The SACCO
concept is very popular in Kenya across all income classes. SACCOs
have an estimated membership of nine million people, providing a
base for mass uptake of microinsurance products.
The rise of mobile phone-enabled payment systems is
also another growth driver of microinsurance. Most of the
microinsurance vendors have chosen mobile money payment
systems as the main premium and claims payment platform,
because it has helped lower transactions costs.
The high penetration of mobile phones including among low
income earners means microinsurance product vendors are able to
serve the mass market without incurring lots of operational costs.
Growth potential
Currently, it is estimated that there are at least one million users
of microinsurance products in Kenya, representing about 2.5% of
the entire population. Insurance penetration in Kenya as a whole is
3.9% according to the Insurance Regulatory Authority (IRA).
Immediate former CEO of CIC Insurance, Nelson Kuria,
who is considered the father of microinsurance in the east Africa
region, says the growth potential for microinsurance is enormous
but product pricing and high administrative costs are major
impediments to the development of the industry.
“Innovation to address the pricing and product relevance will
be the game-changer in microinsurance growth because demand is
there,” he says.
During a recent educational and awareness workshop on
microinsurance in rural Kenya, insurers that participated in the
event expressed surprise at the level of demand for the products but
it emerged that there is disconnect between some of the products in
the market and what the market really requires.
The workshops were sponsored by Continental Reinsurance, a
leading reinsurance company in Africa, and organised by ruralbased media house Kirinyaga Star and Embu Star newspapers
under the Champions of MicroInsurance initiative.
“As lead sponsor, Continental Reinsurance will continue to be
associated with the initiative, which we trust will go a long way
to accelerating the uptake of microinsurance products at grassroot
levels,” says Continental Re’s CEO, Calisto Ogaye.
Other sponsors are CIC Insurance, UAP Insurance, APA
Insurance and Majani Insurance Brokers.
“This is a good initiative,” says Tom Gichuhi, CEO of the
Association of Kenya Insurers.
Global interest
The growth of microinsurance in Kenya has also attracted global
players. US-based firms Grameen Foundation, Opportunity
International and Clifford Chance, along with Kenya’s Penda
Health and MicroEnsure from the UK, recently launched an
initiative called the ‘Uzima Project’ in Kenya, with the aim of
providing health microinsurance solutions. In addition to receiving
financing and insurance, the insured will also receive mobile phone
reminders and messages promoting good health practices.
Jubilee Insurance Company of Kenya recently partnered
with UmandeTrust and CITADEL Microinsurance to provide
microinsurance solutions for low income earners in Kenya. The
move is expected to boost Jubilee’s life portfolio and increase
insurance penetration in Kenya.
Swiss Re also made an entry into Kenya’s microinsurance sector
when it recently acquired LeapFrog Investments’ stake in Apollo
Investments Limited, the parent company of APA Insurance of
Kenya.
LeapFrog had invested $14m in APA in 2011, money that
helped the Kenyan company launch health microinsurance
products.
Societal benefits
The growing use of health microinsurance products in Kenya has
helped reduce maternal and child mortality rates, according to a
recent report by the United Nations.
“As a result of this system, more mothers in Kenya are now
attending more antenatal visits and are able to opt for a skilled
birth procedure through microinsurance schemes,” says the
report—Saving Lives, Protecting Futures.
Kenya’s under-five mortality for every 1,000 births has reduced
by 11.1%, while maternal mortality reduced by 13% between
2010 and 2015.
The growth of microinsurance has also prompted the IRA to
release the draft Kenya Microinsurance Policy Paper, which will
form the basis of regulation of the sector.
Among the recommendations of the policy are that
compensation should not take more than 10 days once the relevant
documents are provided by the claimant. Compensation for funeral
claims should be completed within 48 hours.
It also recommends that minimum capital for the
microinsurance companies should be Ksh50m. SACCOs will be
allowed to own microinsurance companies as well as licensed
aggregators. In addition, it recommends the setting up of a
Microinsurance Compensation Fund.
People.
Insurance isn’t about numbers. It’s about people. In our case, 63,000 people
coming together to take on the impossible challenges. Because we believe
that with the right people and the right attitude you can turn even the
toughest today into the brightest of tomorrows. Learn more at www.aig.com
Southern Africa: Silicosis
10
CONFERENCE
Clyde & Co recently held a seminar in Johannesburg looking at the emerging risk of
silicosis claims against the South African mining industry, as Liz Booth reports
Disease claims spread
to South Africa
D
isease claims worldwide
have been a major issue for employers
and their insurers for many years.
Asbestos-related illnesses have
become the most infamous, with such
poor prognoses for many sufferers.
While African countries have so far avoided the
massive scale of claims seen in the US and Europe,
notably the UK, it is not immune from the threat of
hundreds of thousands of claims.
Most recently, key rulings in South Africa have
brought the very real risk of claims from thousands of
mine workers suffering from some form of silicosis.
Max Ebrahim, a partner in Clyde & Co’s Cape
Town office, says: “The South African gold mining
industry faces a number of challenges including falling
gold prices, sticky labour pricing, the increasing costs
of production, inconsistent energy supply and policy
dithering on the part of the African National Congressled government, to name but a few.”
However, the recent legal developments could
mean billions of dollars at risk as current and former
miners allege they contracted silicosis while working in
the gold mines.
“Dark clouds are gathering,” he says, “occasioned
by the threat of class actions.” Speaking at a seminar
held by Clyde & Co in Johannesburg last month,
Mr Ebrahim adds: “The real game-changer has been
the seminal judgment of Mankayi v AngloGold
Ashanti.”
Mine owners are potentially facing claims of
billions of dollars as, at least 33,000 miners bring
claims against 82 different mines.
Mr Ebrahim warns the total value of the claims
could amount to some $5bn, adding that the South
African Medical Journal warned back in 2012 that
there could be some 300,000 claimants, which may
result in nearer $50bn of claims.
Case for the defence
The mining companies’ defence appears to rely on
several factors, including the available training schemes
for mine workers; regular monitoring of dust levels;
the measures to control dust and the risk management
approach.
Mr Ebrahim believes swing factors in any
litigation will include expert witnesses and evidence as
arguments continue around how silicosis is contracted
in terms of exposure. He says the plaintiff bar is well
organised and in South Africa has the support of some
international law firms, including some experts from
the US and UK used to handling large-scale workers’
compensation claims.
The amount of money being spent by the plaintiff
firms—one company is said to be spending some
R600,000 a month funding these claims—is an
indication of the seriousness of the situation and the
potential value, according to Mr Ebrahim.
Another challenge for the mine owners is that
courts worldwide are increasingly ‘pro-poor’ and the
South African courts have been fairly open that they
agree with that stance.
Although the class action involves miners with
silicosis, the mine companies themselves all operated
under slightly different rules and each mine shaft is
individual, so defence lawyers have questioned whether
the class action represents a common group. Another
challenge for the plaintiff bar is that tuberculosis,
commonly found in silicosis sufferers, is endemic in
South Africa and is often cited on death certificates.
The plaintiff bar will need to show that the illness is
related to working in a cited mine and was linked to
silicosis.
However the key challenge, as one leading lawyer
recently said, is: “Nobody knows how many people are
suffering from silicosis in southern Africa. Claims are
dating from 1958 up to the present day and how many
firms keep records for up to 58 years?”
Issues for South Africa-based businesses and their
insurers to consider is that:
n T
he local landscape, and with it insurance, has
been breached by the Mankayi decision;
n T
he South African courts are likely to extend the
use of class actions up to a point;
n T
he courts are likely to re-examine strict liability;
and
n T
he courts are not going to adopt any form of
conservative approach.
Global experience
South African risk managers and insurers may also
want to take a look at the experience in other parts
of the world. David Wynn, Partner and Head of
Disease Claims in Clyde & Co’s Manchester office, ran
delegates through the experience in the US and the
UK around other work-related disease claims.
He says: “At the moment, the US is over its
asbestos peak and the UK is at a peak in terms of
claims, with an expectation that it will be over it in
the next five years.” However, Mr Wynn warns that
asbestos-related claims are not the only concern, with
noise-induced hearing loss claims climbing rapidly.
In an African context, Leon Rossouw, of Marsh,
warns that not only is noise-induced hearing loss an
issue but he fears platinum-related sickness will also be
on the agenda soon—possibly very soon if the silicosis
class action succeeds.
His concerns were echoed by Adrian Reed, of
Willis, who adds: “Manganese has proved to be quite
hazardous. Vibration white finger and also noiseinduced hearing loss claims are also rising.
“I think it is all coming down the track,” he
warns. “The only question is whether the train can be
diverted.”
Mr Ebrahim warned of more change to come in
the legal regime. “I guess prior to 1994 there was not
much scope to pursue class actions. But now I think
the proverbial horse has bolted.”
Pre-emptive action
The speakers also suggested that business sectors
might want to develop their own compensation system
or scheme before the courts make rulings.
He points to the asbestos scheme and says that
industry has already developed such schemes, working
with insurers. Although under any new scheme,
the quantum might be different as there is at least
a precedent for working out a solution.
Mr Reed points out the problems in affording such
a scheme in relation to silicosis, particularly in a sector
where there is a diminishing profit to be made. “One
has to think the cost of compensation would be huge in
relation to the net worth of the industry today, which is
a lot less than 15 years ago. It is a good idea, but…”
The government would most likely want to be
involved in the construction of any scheme, according
to Mr Ebrahim, because of the continuing importance
of the sector to the country’s GDP, as well as the
importance of the number of jobs still dependent on
the sector.
A partner in the Johannesburg office of Clyde &
Co, Daniel le Roux, says he is aware of at least one
mining house that is actively engaged in conversation
around the concept.
He also warns insurers that if the plaintiff bar
proves successful in winning compensation for silicosis
sufferers, mining houses are likely to turn to their
insurance policies for possible recovery.
The impact of that should not be underestimated,
according to Mr Reed, who points to the asbestos
experience in the UK and the way it impacted Lloyd’s.
“If you apply that to silicosis, one would not be
surprised it might be coming on the horizon,” he says.
Insurance solution?
There was disagreement on whether the mining houses
should look to insurance for a solution. “I don’t think
an insurance solution will make the problem go away,”
said one observer. “If there is an insurance contribution,
so be it, but I don’t see a huge payout from the
insurance market. The key is to admit there is an issue
and do something about it.”
Where Mr Roussouw saw more of an issue for the
insurance market is around the use of contractors in
the mining sector. “I think there is a real possibility of
something lurking there, opening all sorts of doors,” he
believes. “I am a little more pessimistic about insurance
involvement in that and insurers need to look at their
wordings.”
Like Mr Reed, he sees inevitability about claims
coming in the future and he is more concerned
about the position of insurers in relation to the use of
contractors and their exposure to silicosis claims.
Asked about the possibility of claims against
directors’ and officers’ policies, Mr Roussouw did
not believe they would respond, given that silicosis
claims were personal injury claims. He also questioned
whether the plaintiff bar would worry about that
because the pot of money would be relatively small,
however he warns that insurers may have to face
defence costs related to any such claims, regardless of
their merit.
Another concern raised by Mr le Roux was the
capability of smaller mining houses to survive an
onslaught of silicosis claims. “Companies like Anglo
may be able to afford this,” he says, “but what about
smaller companies? They have a risk of going insolvent
and then claimants may turn to the insurers as they
would be entitled to do in terms of the South African
Insolvency Act. Given the claimant bar, there is
certainly scope for claims directly against insurers.”
One Team. One Dream.
Making sure everyone has electricity
is what we at Marubeni and Allianz
strive towards. As trusted partners we
both share deep expertise, and years
of experience, in ground breaking
global projects across infrastructure,
and insurance.
www.agcs.allianz.com
With you from A-Z
Suguru Tsuzaki, Vice President San Roque Power Plant
12
Southern Africa: Silicosis
CONFERENCE
Understanding the issues
from a claimant perspective
While South African risk managers continue
to grapple with the issue of industrial disease
claims, as the law continues to evolve,
Commercial Risk Africa, supported by
Clyde & Co, had an opportunity to discuss
the claimants’ position with leading
South African claimant lawyer, Richard Spoor
With a possible need for legislative
reform at the back of his mind, Richard Spoor,
of Richard Spoor Inc. Attorneys, is firstly
concentrating on winning adequate compensation
for the thousands of miners affected by silicosis.
Reports on how many southern African miners
are affected by the disease vary widely, with the
South African Medical Journal talking in terms of
some potential 200,000 sufferers. Other figures
suggest one in four miners are affected by the
condition, which can prove fatal. Mr Spoor himself
is driving a class action through the South African
courts with a view to representing more than
24,000 class members.
The class action certification process is
currently underway and a decision should be
made in October this year. Mr Spoor says his firm
has 30 proposed class representatives from the
Eastern Cape, Lesotho and Botswana.
The litigation names 32 mining companies,
alleging they knew of the danger to miners for
more than a century and that they are liable for 12
specific forms of neglect and endangerment.
Mr Spoor says he would be happy to sit down
with the mining companies and work out a solution
but also warns that if the mining companies start
to lobby government for legislative change, then
he will follow suit.
In a more conciliatory tone, he also says that
he would be happy to work with the mining houses
and with actuaries to gauge the true extent of the
potential liability. “We know there have been up to
500,000 active miners in the past but this number
has fallen dramatically in more recent times,” he
says. “Miners generally have a working life in the
mines of about 17 years and we know that, of
these mine workers, between 20% and 30% have
silicosis.”
Proving the case
The class action includes dependants of mine
workers, although Mr Spoor admits that proving
the case for dependants is often much harder as
the cause of death will not necessarily have been
fully recorded.
“A lot of these miners come from rural
areas,” says Mr Spoor. “It is very rare you have
medical evidence. And South African law is quite
prejudicial to the claims of widows. Also many of
the claimants are old.
“Their working life seldom continues beyond
the 20 years, which brings them into their 50s.
After that, most miners are probably not well
enough to continue working. The time spent in the
mines is often split—workers may spend a year
in a mine then have a gap before returning to the
sector a couple of years later.”
He says that, with such a high mortality rate
among the miners and the sporadic nature of their
employment, it all adds to the increased difficulty
in bringing claims. “Death does extinguish
liability,” he says, while another challenge comes
in establishing exactly who is liable.
Another complicating factor has been the sale
of the various mining houses. Mr Spoor believes
there are two types of defendants—the mine
owners, who have a statutory liability, and then the
parent companies.
“The parent liability issue has not been
tested in the South African courts,” he says,
whereas the UK courts have made a judgment in
Chandler v Cape PLC. However, even if the parent
companies are brought into the litigation, Mr
Spoor acknowledges there remain issues around
causation and contribution.
“Mine workers may spend four years with one
mine and then 11 years with another—should
compensation be pro rata or should one employer
take on the whole liability?”
Silicosis questions
Even though silicosis has been identified as a
disease for around 100 years, there is still little
evidence about contracting the condition. It is
agreed that silicosis can only be contracted
by inhaling silica dust, generated in the mining
process, however arguments continue to rage over
whether a miner will be affected by brief exposure
or whether it requires long-term exposure. There
are also questions around why some miners are
affected very rapidly on starting work and others
spend years in the mines and remain well.
Mr Spoor says: “There is a lot of bluster about
this. We are talking about deep level mining where
people are working in enclosed spaces and it is
very dusty. The case is about how you should
protect workers, assess risk and take measures
and then monitor the steps you have taken.”
He argues that insufficient measures were
taken and, even where they were, information was
not fed back into the risk management systems.
“Business and the risk management system is
what this is about,” Mr Spoor stresses.
Looking to the UK’s compensation for
mesothelioma sufferers, Mr Spoor acknowledged
the South African system did not have anything
comparable. He believes there is a strong case for
mine owners to avoid the courts and settle.
He says the courts may well adopt the position
that miners do not get sick unless they have
been exposed to harmful quantities of silica dust
and the onus is on companies to prevent that
happening and to ensure the workplace is as safe
as possible.
Why now?
Looking at why these claims can be brought now,
Mr Spoor says much of it lies in the history of
the country and the attitude of government to the
importance of the mining sector and the value of
employees.
Successive apartheid-era governments were
not prepared to “kill the goose laying the golden
egg” and did not want to upset one of the few, and
major, contributors to GDP and foreign exchange.
South Africa does have a compensation
system, established under the Occupational
Diseases in Mines and Works Act (ODIMWA). The
mining industry pays a levy to the compensation
fund but the levels of compensation have
remained low. Mr Spoor also believes the system
has been fairly ineffective and only some 5% of
affected mine workers were actually receiving
compensation at all.
Another problem for the scheme is that it is
based on the number of workers in the industry,
however sufferers may not be identified for up to
10 or 15 years after leaving the sector. In the past,
the industry had many more workers.
Comparing it to the problems in Europe with
pension systems, the ODIMWA faces the same
issues of a diminishing pot faced with increasing
demands.
Combining that with a couple of key court
decisions, the time is right, he says, to bring the
class action. In March 2011, the Constitutional
Court of South Africa issued a landmark ruling in
Mankayi v AngloGold Ashanti. The claimant had
been given a limited payout for his injuries under
ODIMWA but filed under common law for his
lost wages, damages and medical expenses. By
winning in the Constitutional Court, it has paved
the way for other cases to follow.
While everyone is waiting to see the decision
of the South African judiciary in terms of the class
action, Mr Spoor remains confident that the mining
companies will want to settle—not least to achieve
certainty on the balance sheet and to be able to
draw a line in the sand in terms of the future.
Future claims
Looking to the future more generally, Mr Spoor
sees an increasing number of victims of noiseinduced hearing loss. He argues that today most
people with such problems are given analogue
hearing aids, costing around R3,000, however Mr
Spoor says it may not be too difficult to persuade
the courts that sufferers should receive digital
hearing aids, costing nearer R15,000. Sufferers
should also be entitled to batteries for the devices.
“People are entitled to be properly treated,”
he says. At the moment, the difference between
statutory benefits and the actual financial loss
can be quite significant, he believes, and that gap
should be closed.
More broadly, he believes the compensation
scheme governed by the Compensation for
Occupational Injuries and Diseases Act is too
rigid—sufferers are entitled to set payments for
the loss of an eye, for example, but they are not
truly being compensated on the impact of the
disability.
Mr Spoor explains: “The loss of an eye for a
lawyer would not have the same impact on their
ability to work as, say, for a pilot. It is that kind of
thing that needs to be addressed.”
Ultimately, he believes there could be a role
for insurers in helping develop a more equitable
system, by encouraging employers to take more
responsibility in driving up standards and also
in providing a system where injured workers are
properly compensated.
In the meantime, it is a case of waiting to see
how the courts view the prospect of a class action
for silicosis sufferers—and that will not be known
until October this year.
INDUSTRY SECTOR
Transport
13
Time to take the brakes off
Increased investment in transport
infrastructure can facilitate
cross-border trade and drive
regional integration, as
Gareth Stokes explores
Skyward bound
T
he World Economic
Forum 2014/2015 Global
Competitiveness Report (GCR)
paints a gloomy picture for
cross-border transport in Africa.
There are only a handful of
countries where overall transport infrastructure
rankings are better than the global ‘mean’, with
the best prospects located in north and southern
Africa—in countries such as Tunisia and South
Africa.
The Programme for Infrastructure
Development in Africa (PIDA) estimates that
$360bn in infrastructure investments is required
in Africa between 2011 and 2040. PIDA
outlines 51 priority ‘backbone’ infrastructure
projects that would cost $68bn by 2020,
with almost 40% of this total ring-fenced for
transport infrastructure.
This unflattering overview of the African
transport infrastructure landscape does not
detract from the potential in transportation
businesses. Although the outlook for transport
and logistics companies in South Africa and
Africa is mixed, persistently lower global fuel
prices and the projected positive economic
growth rates for many countries in Africa will
impact positively on the industry.
But lower energy prices present challenges
too. Threats to companies operating crossborder in Africa include volatility in fuel
costs, concerns over carbon emissions and
environmental impact, shortfalls in rail capacity,
corruption and overloading of road networks.
Road reliance
The bulk of cross-border transport in Africa
is completed by road—with rail (from mine
to port) dominating the space for commodity
exports out of Africa. Whether goods are
shipped by air, rail or road is less important than
ensuring that the various categories of goods
are being transported by the most appropriate,
efficient and sustainable mode of transport.
There is consensus that Africa relies too
heavily on its road infrastructure for bulk
freight. The volume of bulk freight transported
over long distances by road remains too high
and has an adverse impact on safety, the
environment and the road infrastructure.
A glaring challenge in the industry is the
obvious underinvestment in road and rail
infrastructure throughout Africa. Governments
will have to increase their expenditure on
transport services and the related infrastructure
if they hope to create much-needed jobs and
enable greater economic growth.
Brakes on growth
While demand for logistics and freight services
will remain robust, there are concerns about
the slump in global commodity prices, which
have placed strain on bulk freight transport
businesses as African miners curtail production
and exports.
A programme aired on CNBC Africa last
year—Invest Africa: Transport Infrastructure
Investment in Africa—acknowledges that
Africa’s poor transport infrastructure is limiting
its economic growth. Richard Matchett,
Divisional Director, WSP Civil & Structural
Engineers—who participated in the television
debate—observes that transport infrastructure is
the key to unlocking a country’s potential.
Investment is desperately needed as
transport infrastructure is integral to facilitating
cross-border trade and improving regional
integration. It is also widely accepted that poor
transport infrastructure is an impediment to
economic growth. The consensus is that intraAfrica freight volumes will improve markedly
and play a part in enhancing regional trade if
this investment is given priority.
Funding
improvements
One of the major hiccups for Africa-wide
infrastructure projects is financing. As
governments come under increasing strain to
fund non-transport socio-economic promises to
their electorate, they have no choice but to seek
out private-public-partnerships (PPPs) to build
air, rail and road infrastructure.
The transport infrastructure investment
challenge has created a great opportunity for
the Africa region to develop and implement
progressive PPP investment strategies and
to implement projects that will ensure that
the obligation to fundraise and the risks and
rewards of investments are shared by all relevant
stakeholders.
Estimates state that as much as 40% of
existing highway infrastructure in Africa is not
up to scratch, with only a handful of countries
boasting road infrastructure ratings (according
to the GCR 2015) that are better than the
global average. The best ranked African
countries include Namibia (28th), South Africa
(37th) and Rwanda (46th), while the worst
ranked include Guinea (143rd), Libya (142nd)
and Mozambique (141st).
The New Partnership for Africa’s
Development (Nepad) outlined some of Africa’s
largest road infrastructure projects at the
recent Dakar Financing Summit for Africa’s
Infrastructure. One of these is the upgrading of
the Serenje-Nakonde road, covering a total of
614.7km at a cost of $674m. The solution will
improve the overall road transport infrastructure
that accounts for more than 80% of cargo in the
Dar es Salaam Corridor.
Another is the Abidjan-Lagos Coastal
Corridor, which is the most travelled west
African corridor on the African Regional
Transport Infrastructure Network. The upgrade,
budgeted at just short of $70m, will increase
regional trade and contribute to regional
integration involving five countries –Ghana,
Ivory Coast, Togo, Benin and Nigeria.
On the rails
But the salvation for Africa could lie in
improved utilisation of the existing rail
infrastructure. More freight needs to move by
rail on the continent and more countries need
to commit to upgrading their existing rail
infrastructure, building new railway lines and
investing in rolling stock.
Rail is seen as a relatively safer mode of
transport than road and it is best placed to
provide significant cost savings for long-haul
bulk transportation. The risk of theft on trains
is lower than road and, by design, cross-border
movements should be seamless.
South Africa, for example, has invested
heavily in its passenger rail rolling stock to
replace its ageing fleet. Associated signalling
infrastructure and station and marshalling yard
upgrades have are also being procured by the
Passenger Rail Agency of South Africa—
but major track upgrades on the manganese
line, Waterberg coal line and the new
Lothair link are yet to go to tender.
Although there are no major new build projects
underway, rail operator Transnet has embarked
on a highly-publicised Market Demand
Strategy, which will see the introduction of new
rolling stock and infrastructure upgrades to the
network.
National rail operators in the rest of
Africa have been adopting a corridor-specific
approach to enhancing cross-border freight
movements. The north-south rail corridor in
particular has been very successful in recent
times and has seen a more predictable and
efficient rail service between customers and
mines in northern Zambia transporting freight
to the ports of Durban and Richards Bay. The
operational efficiencies have been achieved
through extensive collaborative efforts across
country networks including Zambia Railways,
Beitbridge Bulawayo Railway and Transnet.
The fact that many African countries are
landlocked and the vast majority of countries
have poor rail and road infrastructures is also a
factor that contributes to air transport being a
viable option to certain destinations.
Airfreight out of Kenya, for instance, is
a very big market due to the export of fresh
flowers—as much as 200 tons per day—for
the European market. It is not uncommon
for airlines such as KLM and Lufthansa to
depart out of Johannesburg and stop over in
Nairobi specifically to pick up flowers. Heavy
investments have therefore been made in airport
infrastructure in Nairobi. A further example
of this is animal vaccines, which are exported
out of South Africa to a number of African
countries.
Of course there are risks, though the
reduced transit times certainly reduce the extent
to which the cargo is exposed. The largest risk
with moving cargo via airfreight is the continual
change in local laws at destination—laws are
changed without much notice and the policing
of the regulations can be extremely inconsistent.
The high level of bureaucracy and rapid changes
in laws result in increased costs in the form
of penalties, delays, product damages and
pilferage.
The long-term effects of civil wars and the
lack of investment in infrastructure have led to a
situation where airport infrastructure in much of
Africa is far below the required standards.
Airport operators are often unable to handle
the various products correctly and struggle to
meet turnaround times and correctly handle
modern aircraft. But the fact that Africa has
developed into a key market in the global
commodities context should serve as motivation
for the upgrading of airport facilities in various
African countries during the next few decades.
Cause for
optimism
There is a bright future for Africa transport
infrastructure projects through to 2020
and beyond. “The African Union and
NEPAD have a wish list of what needs to
be done regarding ensuring sustainable and
affordable cross-border trade,” says Vishaal
Lutchman, Divisional Director, WSP, Parsons
Brinckerhoff, Development, Transportation and
Infrastructure, Africa.
To succeed, governments will have to
implement fundamental reforms and address the
sticking points including cumbersome customs
and trade regulations and the prevalence of
corruption at border posts, to name a few. “All
stakeholders will have to develop clear country
strategies on how to facilitate cross-border
trade with due consideration for the many
challenges already identified,” Mr Lutchman
says. Regulation is one such stumbling block,
as is political interference in state-controlled
transportation assets.
Many African economies are also
encumbered by the legacy of colonialism,
which saw them inherit infrastructure that was
designed to specifically serve the interests of
‘occupying’ countries such as France, Portugal,
Spain or the UK. Historical affiliations with
western powers often hinder negotiations
between African countries, as evidenced by the
close alignment between African trading blocks
and their former ‘occupiers’.
Andrew Maggs, an independent research
analyst, offers some insightful comments in
the Invest Africa insert. He observes that air,
road or rail infrastructure development has to
occur as a coordinated effort—and that it does
not help for individual countries to pursue their
development agendas in isolation. Africa has to
adopt a more coordinated approach to crossborder planning, development and installation
of infrastructure.
COUNTRY FOCUS
ethiopia at a glance
n
CAPITAL CITY:
n
Type of government:
n
Head of government: Prime Minister Desalegn Hailemariam
n
Population:
n
Land area:
1.104m km2
n
Coastline:
Landlocked
n
Neighbouring countries:
Addis Ababa
Federal Republic
96.6m ( July 2014 est.)
Djibouti, Eritrea, Kenya, Somalia, South Sudan & Sudan
n
GDP:US$139.4bn (2014 est.)
n
GDP growth rate:
8.2% (2014 est.)
n
Inflation rate:
7.8% (2014 est.)
source: CIA World Factbook
Ethiopia
Ethiopia has been a fairly closed book in terms of foreign investment
but things are changing. Here are some facts about the Ethiopian economy
Ethiopia factbook
K
ey growth drivers in Sub-Saharan Africa (SSA) will
continue to be natural resource exports and investment in
commodities.
The service sector is also making an increasing
contribution to the region’s growth, particularly finance and telecoms.
Ethiopia is the fastest growing non-oil-producing economy in Africa.
The Ethiopian economy has experienced spectacular growth during
the past decade, with an average GDP growth rate of 11%, about double
the average growth for SSA (UNDP Policy Advisory Unit, Analysis Issue,
February 2014).
A genuine agricultural transformation articulated by the proliferation
of modern commercial farms, as well as a leap in the productivity of
smallholder agriculture, is a very realistic possibility in the next few years,
and will hence be a key driver of nationwide growth.
Moreover, emerging export industries in mining, manufacturing and
services are already making their mark as sources of economic growth and
will soon overtake traditional foreign exchange earners such as coffee and
other agricultural commodities.
Massive public investments are set to deliver a wide range of public
goods—roads, railways, sugar factories, power plants, metal industries,
schools, and hospitals—while simultaneously buttressing thousands of
private companies involved in building and maintaining these brand new
facilities.
Public investment has in recent years been one of the major drivers
of economic growth in Ethiopia. Total government spending, passing
Birr100bn for the first time, has doubled in the past three years and
quadrupled in the past six years. Among the notable plans in this area are:
Roads: Building 71,000km of new highways, including all-weather roads
providing access to virtually all Kebele administrations.
Railways: Construction of 2,395km of new railways linking Addis Ababa
with Djibouti, Awash-Woldiya-Mekelle and the Addis Ababa light railway
network, to mention just a few.
Air Infrastructure: Increasing Ethiopian Airlines’ fleet by 35 additional
aircraft, including four new cargo carriers, and building a huge new cargo
hub at Bole Airport with capacity to handle 125,000 tons.
Power: Addition of 8000MW of new power generation capacity.
Rapid growth
Ethiopia has registered remarkable economic performance, with annual
growth averaging 10.9% in the past 10 years. This is double the SSA
average and triple the world average during this period and has led to
Ethiopia being rated as one of the fastest growing economies in the world.
Huge public investments with a focus on infrastructure and pro-poor
sectors explain much of the economic performance from the expenditure
CONTINUED ON PAGE 16
Ethiopia
16
COUNTRY FOCUS
Insurance to play increasing
role in Ethiopian development
Ethiopia has been growing rapidly
for more than a decade. Liz Booth
visited the country to take a look
The Lion of Judah,
Addis Ababa
T
he Ethiopian economy has
been growing rapidly for the past 11
years, towards its vision for 2025.
The Honourable Ahmed Shide,
Minister of Finance and Economic
Development for Ethiopia, says the
whole philosophy of the vision is to support development
of the nation, with financial services leading the way in
enabling that progress.
“The banking sector has a tremendous responsibility,”
he says, “and the insurance sector will play a significant
role in this.”
Referring to the Common Market for Eastern and
Southern Africa (Comesa) heads of state conference in
Addis Ababa late last month, the minister says:
“The conference comes at a time when we are trying
to improve economic conditions for our people. It is
true Africa is emerging as a continent to watch and
Comesa is encouraging business.
“We are all aware of the economic opportunities in
Africa,” he adds, saying much of the rest of the world, and
financial services in particular, are still smarting from the
challenges of the financial downturn.
Mr Shide stresses: “We appreciate the important role
that insurance plays in the development of our country.
The industry addresses employment issues and contributes
towards the economy directly. The Ethiopian government
will strive to provide attractive conditions for local and
foreign investments and this will encourage insurance—on
a national level, a regional level and internationally.”
He stresses that his main message is that the insurance
industry will shortly be able to take advantage of
opportunities in Ethiopia.
Investment needed
Speaking exclusively to Commercial Risk Africa, Mr Shide
says the Ethiopian economy to date has been heavily based
on smallholder agriculture and he says the country needs a
lot of investment.
The minister sees the banking sector, supported by the
insurance industry, as a way to mobilise resources locally
and deliver it into development areas.
“Insurance is a key player in the financial sector. The
banking sector, including insurance, will become even
more important in the near future as the country moves
into the manufacturing sector,” he says.
The minister says the development of
manufacturing—something Africa as a whole is weak on—
will start by developing manufacturing around adding
value to the agriculture sector.
“It will transform the economy from smallholder
agriculture to manufacturing,” he says. Ethiopia, with
the help of insurance, he adds, is ready to “unleash the
opportunities”.
Mr Shide stresses: “Our agriculture will remain a
source of development but we need to add value to the
sector.”
CONTINUED FROM PAGE 14
side. Government investments have mainly been carried
out from domestic resource mobilisation and augmented by
external resource inflows.
Domestic savings have been growing significantly in the
past few years—from 12.8% of GDP in 2010/2011 to 17.7% of
GDP in 2012/2013.
The Ethiopian economy grew by about 9.7% in 2013 as
macroeconomic conditions were expected to continue. This
represents rapid growth, compared with 5.5% for SSA and
4.4% for the entire world in the same period.
Within the 2013 overall real GDP growth rate of 9.7%,
annual growth rates of the major sectors—agriculture, industry
In terms of manufacturing, Ethiopia will start by
looking to the textile sector, which can develop on the
back of the country’s agricultural base. Other areas include
chemical and laser processing.
The government plans to develop seven or eight
manufacturing focuses, which it will promote in terms of
foreign direct investment. The government itself, says the
minister, will continue to invest in infrastructure and on
building institutions.
“But the real wealth generation has to happen both
by the Ethiopian government, the private sector and
international investment,” he says.
Primed for funding
Mr Shide adds that the government would be promoting
foreign direct investment and the use of the strengthening
banking sector to enable the business sector. He sees
investment coming from all corners of the globe. “Ethiopia
is set to attract investment,” he says.
Ethiopia is primed for foreign investment, he believes,
thanks to strong infrastructure, including railway and road
links, as well as a good power supply and investment in
the economy.
Not only does Ethiopia now have a direct rail link to
the east coast, allowing for exports and imports, but it also
has sufficient power to sell to its neighbours after already
and service—were 7.1%, 18.5% and 9.9% respectively.
According to MOFED, the country’s GDP growth rate for
2014 was expected to reach 11.2%.
Industrial expansion
Growth in the industrial sector was very strong in the past three
years. This sector was the highest performer in 2013/2014—
registering 21.2% annual growth, which was about 2.8% lower
than a year earlier. Its share in the total domestic output,
however, stood at 14.2%—a 1.3% increase over the preceding
year.
Despite its faster growth rate compared with the other two
major sectors, the industrial sector’s share of GDP remained
low.
meeting its own needs.
The minister is aware of the skills shortage across the
region and says the government is determined to address
the issue. It is already investing heavily in health and
employment but has developed a 70:30 strategy for its
universities. This means universities will have courses that
deliver 70% of its students directly into the areas of the
economy where skilled labour is most needed. The other
30% will graduate with social-related degrees.
“We will align education to the demands of the
economy,” he says, “and that will help reduce the scarcity
of skilled labour.”
Alongside investment in the economy and education,
the minister says the government is determined to “build
its institutions to ensure they deliver good government to
the people of Ethiopia”.
For example, he says the government has upgraded the
investment authority into an investment commission to be
able to deliver one-stop shipping to investors. The Prime
Minister is chairing the commission to ensure everyone sees
how vital this is to the future of the country. Investment
will be centred around Addis Ababa and selected regional
hubs, with the construction of industrial zones.
Overall, says the minister, the message is that the
country is ready for the next phase of its transformation
and is looking to attract quality investment into the
country to give another boost to its GDP.
The agriculture sector’s contribution to GDP growth in
2014 was down by 9% to 21.9% against the previous year,
highlighting a structural shift in the economy from agriculture
to the service sector.
In 2013/2014 the service sector registered year-on-year
growth of 11.9%, which was 2.9% higher than the previous
year. The service sector’s share of GDP was about 45.9%—up
from 38% in the past 10 years. Agriculture’s share of GDP
declined from 52% to 39.9% in the same period. However,
agriculture will continue to be the main source of employment
as the service sector has not yet been able to generate much in
the way of jobs.
Source: Yewondwossen Etteffa, CEO, Ethiopian Insurance
Corporation
Africa Re
African Reinsurance Corporation (Africa Re)
Leader of the Reinsurance Industry in Africa
Leading Africa:
Africa Re is leading the African reinsurance industry with a 10% market share (Standard & Poor’s);
Truly African:
Created and led by and employing only Africans;
Competitive Africa:
Africa Re ranks 40th in the Standard & Poor’s List of Global Reinsurance Groups (Standard & Poor’s), 2014
Turnover: $ 717 m, 2014 Profit: $ 114 m;
Visible Africa:
Africa Re is the largest reinsurance company in Africa, Near and Middle East (Standard & Poor’s and A.M. Best
Co.);
Proud Africa:
Africa Re is the only reinsurance company rated A – in Africa by Standard & Poor’s for 6 consecutive years and by
A.M. Best at A - / Positive Outlook;
Exporting Africa:
Africa Re writes businesses from Middle East, South-Eastern Asia and Latin America. It started operations in Brazil
last year 2014;
Distinguished Africa: “Best Insurance Institution” (AIO, Mauritius, 2012), “Best Regional Retakaful Company”
(ITS, London, 2012 and Cairo, 2013), African Leadership Award to its CEO (Thought Leaders, Mauritius, 2014),
Best Reinsurance Company (cfi.co, London, 2014), etc.
Proudly African
International Standards
Excellence
Ethiopia
18
COUNTRY FOCUS
Too many people remember Ethiopia of the 1980s and 1990s when famine struck. Agriculture remains the mainstay
of the economy, although the government is looking for change. Earlier this year, the World Bank issued a series of
reports on the current situation within the agricultural sector and the prospects for development
International agencies have confidence in
Ethiopia, politically and economically
A
gricultural growth
has been the main driver of
poverty reduction in Ethiopia
since 2000, according to the
World Bank Group’s (WBG)
latest Poverty Assessment.
Poverty in Ethiopia fell from 44% in 2000
to 30% in 2011, which translated to a 33%
reduction in the share of people living in poverty.
This decline was underpinned by high and
consistent economic growth.
Since 2005, agricultural growth has been
responsible for a reduction in poverty of 4% a
year, suggesting that the agricultural growth
strategy pursued by the government of Ethiopia
has paid off. The WBG says high food prices
and good weather ensured that increased use
of fertilizer was translated into higher incomes
for poor farmers with access to markets.
Government spending on basic services and
effective rural safety nets has also helped the least
well-off in Ethiopia. The Productive Safety Net
Program alone has pushed 1.5 million people out
of poverty.
“Although Ethiopia started from a low base,
its investment in pro-poor sectors and agriculture
has paid off and led to tremendous achievements
in economic growth and poverty reduction,
which in turn have helped improve the economic
prospects of its citizens,” says Guang Zhe Chen,
WBG Country Director for Ethiopia.
The pace of poverty reduction in Ethiopia has
been impressive, especially when compared with
other African countries; only Uganda has had
higher annual poverty reduction during the same
period. Health, education and living standards
have also improved, with undernourishment
down from 75% to 35% since 1990 and infant
and child mortality rates falling considerably
since 2000.
New financing
As part of its bid to help Ethiopians out of
poverty, last month the WBG’s board of
executive directors approved $350m to help
the Ethiopian government increase agricultural
productivity and enhance market access for
smallholder farmers in more than 150 of its rural
districts.
The new financing, from the WBG’s highly
concessional lending agency the International
Development Association, will further boost the
development potential of Ethiopia’s agriculture
industry, which accounts for 45% of the
country’s total output and occupies nearly 80%
of the nation’s labour force. It is also a major
contributor to export earnings.
The Second Agricultural Growth Project
(AGP2) will operate in 157 woredas (districts) in
Amhara, Oromia, SNNPR, Tigray, BenishangulGumuz, Gambella and Harari regional states,
as well as Dire Dawa city administration.
The project will directly benefit 1.6 million
smallholder farmers, who live in areas with the
highest potential for agricultural growth.
The project builds upon the impact of the
ongoing AGP1 by increasing its geographical
coverage and incorporating the lessons from
the original project. AGP1 has benefited
communities in 96 woredas, including through
the construction of irrigation, feeder roads,
footbridges and market centres, the establishment
and support to farmer groups, strengthening
public agricultural services, and improving
smallholder farmers’ access to markets.
“We are encouraged by the positive results
achieved under AGP1, which is helping to
improve the livelihood of smallholder farmers
and their communities. The new financing will
further empower smallholder farmers, especially
women and young people, to define the support
they need to raise their productivity and get
better access to markets,” says Mr Chen.
AGP2 will support the government
in increasing productivity and commercial
opportunities for smallholder farmers by:
n Increasing access to agricultural public
support services;
n I ncreasing the supply of agricultural
technologies through support to agricultural
research;
n Increasing access to and efficient use of
irrigated water;
n Better connecting smallholder farmers to
markets;
n Improving project management, capacity
building and monitoring and evaluation.
The WBG’s support for AGP2 is expected
to leverage additional support from other
development partners to create well coordinated
donor support for Ethiopian agriculture.
“Achieving transformation in agriculture will
further fortify Ethiopia’s ambition to become
a middle income country by 2025. This latest
project will support this vision through its special
focus on smallholder farmers, providing them
with the production and marketing services and
infrastructure they will need to thrive,” says
Andrew Goodland, WBG Program Leader.
Private sector key
to future success
The private sector is expected to play a key
role in Ethiopia’s journey to become a middle
income country in the next decade. However,
Ethiopian firms face significant financial
constraints, because financial institutions do not
accommodate their needs, a new WBG study has
found.
The report—SME Finance in Ethiopia:
Addressing the Missing Middle Challenge—reveals
that without adequate support from financial
institutions, small and medium-sized (SME)
businesses are not able to grow, or create more
job opportunities.
This gives origin to the so-called ‘missing
middle’ phenomenon whereby small enterprises
are more credit constrained than either micro
or medium/large enterprises,” says Francesco
Strobbe, WBG senior financial economist.
The study used both supply and demand
research to offer a complete picture of SME’s
finance practices in Ethiopia. While there was
already anecdotal evidence that small firms were
lacking suitable access to finance, the study was
able to provide empirical evidence of the existence
RATING AGENCIES remain confident
Ethiopia’s economic growth continues to outpace the average for its peers, and its large service
exports and remittances support the current account position, according to Standard & Poor’s (S&P) as it
affirms its B/B ratings on Ethiopia.
It says: “Public sector borrowing by state-owned enterprises is rising, straining government debt metrics
and contingent liabilities. The stable outlook on Ethiopia reflects our view that, in the next year, the economy will
sustain strong growth, current account deficits will not rise significantly, and the debt burden will not increase
substantially above our current expectations.”
The rating agency adds: “The ratings are constrained by Ethiopia’s low GDP per capita, our estimate of
large public sector contingent liabilities, and a lack of monetary policy flexibility. The ratings are supported by
Ethiopia’s brisk economic growth rates that exceed that of peers. Ethiopia’s ratings also reflect the country’s
moderate external deficits and fiscal debt, post-debt relief.”
Excluding borrowings by state-owned enterprises, it estimates net general government debt will rise to
26% of GDP by 2017, from 21% of GDP in 2013. In addition, Ethiopia’s foreign exchange reserves are low, at
approximately two months of import cover.
“The decline in international commodity prices—mainly coffee, gold and, to a lesser extent, horticulture
(flowers, fruit, and vegetables), which are the main export items—continue to weaken Ethiopia’s trade balance,”
warns S&P. At the same time imports have been rising, predominantly due to capital goods for construction
projects and fuel imports. Ethiopia benefits from a services account surplus largely linked to Ethiopian Airlines’
revenues and large current account transfers, mainly remittances that S&P estimates at about 10% of GDP.
“The agriculture sector, alongside sizeable government spending in public sector infrastructure, has
delivered high economic growth rates averaging at least 9% for the past decade. We estimate real GDP per
capita growth will average 6.4% in 2014-2017. The government, through its state-owned enterprises, continues
to invest in roads, rail, and hydropower projects. However, despite these investments, we estimate Ethiopia’s
GDP per capita wealth levels will remain low at $630 in 2014,” adds the agency.
The $4bn-$5bn Grand Renaissance Dam hydropower project, currently 40% complete, is expected to start
providing energy (just 750 megawatts) in the next 12-18 months. The dam will be completed and at full capacity
in three to five years. S&P expects this will further boost Ethiopia’s economic growth and exports. “In our view,
Ethiopia faces geopolitical risks from four of its six unstable neighbouring countries: Somalia, Eritrea, Sudan and
South Sudan, which are currently involved in domestic conflicts. However, Ethiopia has been at the forefront of
finding peaceful solutions for its neighbours through the Intergovernmental Authority on Development in member
states around the Horn of Africa and east Africa,” it concludes.
Meanwhile, Fitch Ratings has affirmed Ethiopia’s Long-term foreign and local currency Issuer Default
Ratings (IDRs) at ‘B’. The issue ratings on senior unsecured foreign currency bonds are also affirmed at ‘B’, with
a stable outlook. The Country Ceiling and the Short-term foreign currency IDR are also affirmed at ‘B’.
Fitch says “Ethiopia’s ‘B’ IDRs reflects a balance between the economy’s high exposure to weather and
commodity price shocks, as illustrated by particularly weak development and governance indicators, and strong
economic growth associated with improved public and external debt ratios.” Key rating drivers include:
n Development and World Bank governance indicators remain weak despite achievements in the last decade.
n Macroeconomic performance is broadly in line with peers.
n General government’s fiscal stance has remained cautious.
n The banking sector is sound with NPLs of around 3% of gross loans; however, risks could emerge.
n Weak FX generation is a constraint on the ratings given the rising foreign-currency indebtedness of the
government.
of a “missing middle phenomenon”.
The study also offers recommendations to
help reduce financial challenges and promote the
growth of SMEs. Those recommendations were
discussed after the launch of the study during a
two-day forum with high level policymakers and
stakeholders. The forum also enabled participants
to learn from global best practices from Nigeria
and Ghana, which were able to successfully
implement financing activities for SMEs.
The WBG says it supports the Ethiopian
government’s efforts to create jobs through
analytical studies and investment operations.
The Ethiopian government has prepared a
private sector development strategy to improve
the productivity and modernisation of the
agricultural sector, and boost the technological
sophistication and economic input of the
industrial sector.
It has also identified the development of
micro, small and medium-sized enterprises
(MSMEs) as a key industrial policy direction for
creating employment opportunities for millions of
Ethiopians. However, all this is not sufficient and
much more remains to be done to unleash the full
potential of SMEs, says Mr Chen.
“To help fill in some of the gap through
microfinance institutions, the World Bank
Group, in cooperation with DFID and CIDA,
is supporting the Women.s Entrepreneurship
Development Project,” Mr Chen says. “In
addition, through the $250m Competitiveness
and Job Creation Project, the WBG is also
helping to create dedicated industrial zones.”
The government’s second Growth and
Transformation Plan (GTPII), currently under
preparation, will place even more emphasis on
the importance of private sector development and
therefore on easing access to finance for SMEs.
The government has put in place helpful public
support programmes but much more is needed to
properly address the missing middle challenge.
“By increasing the capacity of the financial
sector to properly serve the segment of small
enterprises with adequate financial products, we
hope to address lack of access to finance, which
is a key obstacle that is currently preventing
small enterprises from fully playing their role in
the industrialisation process of Ethiopia and in
contributing to the job creation agenda envisaged
in the GTP I and GTP II,” says H E Ato
Desalegn, State Minister Of Urban Development
Housing And Construction.
Private sector
ecosystem
Taking into consideration the findings and
recommendations of the study, the WBG will
help support the government in designing new
initiatives to better serve the financial needs of
SMEs and create an “SME finance culture”.
These interventions will complement the
positive results of ongoing operations such as
the Women’s Entrepreneurship Development
Project and the Competitiveness and Job Creation
Project by linking SMEs with larger enterprises
in the industrial zones and contributing to the
creation of a “private sector ecosystem” around
the industrial zones.
“The SME finance study contains important
policy recommendations that will need to be
taken into account in the design of a new SME
Finance project,” Mr Desalegn adds. “I’m
confident that the inputs will help promote an
SME finance culture in Ethiopia that will greatly
contribute to the industrial policy objectives of
the GTP and ultimately to the wellbeing of our
country.”
COUNTRY FOCUS Ethiopia
19
Time is ripe for Ethiopian
insurance sector
Ethiopian insurers have an unparalleled opportunity
to expand in what is effectively a closed market, as
Yewondwossen Ettefa explains to Commercial Risk Africa
E
thiopia’s insurance industry
is relatively undeveloped, which is
exemplified by the low penetration—there
were just 300,000 insurance clients in
Ethiopia in 2014, according to Yewondwossen Ettefa,
Chief Executive Officer of the Ethiopian Insurance
Corporation.
He said that, according to the Center for Financial
Inclusion’s latest figures, insurance premiums, including
life and general insurance, totaled Birr4.9bn in the
2013/2014 financial year, accounting for a mere 0.2%
of GDP.
In 2014, there were 17 insurance companies with a
total capital of Birr2.03bn operating a network of 332
branches throughout the country. General insurance
dominates the sector, with motor vehicle insurance
accounting for 43% of total insurance premiums. Life
insurance accounted for 6% of total premiums.
developed more than half a century ago and continue to
be sold with little or no modifications.”
Mr Ettefa also worried: “No one knows for sure the
source of the rates being applied to compute premiums
for the various classes of business, except that variations
of the rate charts which were used by Ethiopian
Insurance Corporation were put into use with little or
no modification.
“As the pricing of products was not done in a
scientific way there is no surprise that price continues
to be highly volatile, making it the main challenge for
the industry.”
He continued: “The fact that the market has
never experienced any serious major loss towards which
insurers were called to contribute their share partly
explains why there had never been any bankruptcy—
[more than] than the effectiveness of the regulatory
regime acting proactively to stave off such events.”
A bit of history
Industry performance
Providing a history of insurance in Ethiopia, Mr Ettefa
explains insurance as a risk transfer mechanism emerged
at the beginning of the 20th century, although there
was a wide range of schemes to share losses among
members of a community.
Even today, burial societies, which are called ‘Idirs’,
are still widely used to cover the funeral expenses of
members from monthly contributions. Similarly, sellers
of livestock used to give some form of guarantee,
commonly known as ‘Medin’, to give protection if the
animal was suffering from some form of ailment or
infection that was not identified at the time of purchase.
The revolution of 1974 “caused sudden and
profound changes in the political, economic and social
landscape” according to Mr Ettefa. He explains all 13
insurance companies operating in the market were
nationalised and subsequently merged into a single
company. The companies were reorganised into six main
branches under the Ethiopian Insurance Corporation,
with 490 employees.
Twenty years later, the Proclamation for the
Licensing and Supervision of Insurance Business
(Proclamation No.86/1994) heralded the beginning of
a new era. It effectively put an end to the monopoly
enjoyed by the Ethiopian Insurance Corporation for
nearly 18 years. Unlike the 1970 Proclamation, the new
Proclamation stipulated only Ethiopian nationals and
companies fully owned by Ethiopians were permitted to
engage in insurance business.
In addition, both general and long-term insurance
business was permitted and, currently, eight of the
17 companies operating in the market are composite
insurers.
The total capital of the insurance companies had
reached Birr2.03bn by June 2014, with the total
number of branches at 332. According to Mr Ettefa, the
industry’s gross written premium was Birr4.9bn, while
total incurred claims amounted to Birr2.16bn at the
end of the same period.
Gross written premium, which stood at
Birr296.9m in 1994/1995 registered spectacular growth
to reach Birr4.96bn in 2013/2014, while the cost of
claims had increased at a lower rate during the same
period.
The gross written premium of the industry has been
increasing steadily during the past 15 years, showing
an average increase rate of 22% (2003) to a maximum
of 53% (2012) in respect of general insurance business,
according to the National Bank of Ethiopia. Likewise,
long-term business has also witnessed growth ranging
from 10.24% (2003) to 39.97% (2011).
Net claims incurred and loss ratio are as follows:
n The loss ratio for general insurance business fell
from 56% in 2002 to 74% in 2011.
n The average loss ratio amounted to 59%, showing
an increasing trend in the past five years.
n On the other hand, for the life sector, the loss
ratio fell from 28% in 2008 to 75% in 2002.
The average loss ratio stands at 46%, in the years
between 2001 and 2011.
Mr Ettefa said statistics have shown that the gross
market premium has increased from Birr204.5m in
1992/93, when the corporation was a sole operator, to
Birr4.9bn in 2013/2014.
In absolute terms, there was an increase of
Birr4.7bn in the past 20 years. Nevertheless, the
relative depreciation of the Birr against the US
dollar, the upward movement in the general price of
commodities and other factors had considerable impact
on the growth in premium income.
Again he stressed: “It is also equally important
to take into account the impact of the unbridled price
competition on gross premium income. The impact of
price cutting on premium costs insurers roughly 40%
of the gross written premium, compared to the income
they could have generated had they stuck to the rates
applied to compute premiums before liberalisation.”
Opportunity knocks
Mr Ettefa stressed: “Massive investment in
infrastructure, coupled with the spectacular doubledigit growth the economy has enjoyed in the past
decade, have created tremendous opportunity for the
insurance industry.”
However, he has some warnings for the sector too.
“This is an industry which so far has done little to invest
in human resource development and innovation aimed
at making insurance accessible to the vast majority of
the population.
“Unfortunately, no insurance company would
venture on to develop new products and introduce a
new service delivery method aimed at attracting more
customers and thereby boosting its income.
“The majority of the products on the market were
Partner
with Aon
Best Global Insurance
Broker in Africa for 2013*
Anton Roux, CEO: Aon South Africa, explains:
“This award follows a number of innovative
risk management and insurance solutions,
empowering human and economic possibilities for
our clients to help them achieve sustainable growth,
continuity and profitability. Aon has the largest
majority-owned network in Africa, servicing clients in
45 out of 54 countries.”
Partner with Aon – put us to the test.
0860 453 672
Call
or SMS** ‘Risk’ to 31762 or visit aon.co.za
Sector challenges
One of the conditions for a licence to carry an insurance
business is capital. The minimum paid-up capital,
according to the proclamation, should not be less
than Birr3m for general insurance, Birr4m for life and
Birr7m for both general and long-term insurance.
However, Proclamation No. 746/2012 and
subsequent directive (Directive No. SIB/34/2013)
issued by the National Bank pushed up the capital
requirement to carry on both long-term and general
insurance business to Birr75m.
Mr Ettefa said: “On the face of it, this increase
could be said to be massive since it denoted more than
a 1000% rise compared to the original requirement but
it is still inadequate to enable insurers to write relatively
large risks and to give them sufficient funds to invest.
The Ethiopian insurance industry has recognised
the scarcity of manpower, both in number and quality,
is a threat which endangers the development of the
industry in both the short and long run, said Mr Ettefa.
“The industry had relied on the Ethiopian
Institute of Banking and insurance for the supply of
skilled technicians and managers for a long time. So
the insurance industry needs to have a manpower
development strategy to ensure a continuous supply of
highly trained professional staff capable of maintaining
the competitiveness of the industry,” he added.
Risk. Reinsurance. Human Resources.
#AskAon
* Aon received the Best Global Insurance Broker
in Africa award from Global Finance magazine
in its 2013 Best Global Insurers Awards.
** Standard rates apply.
Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider (FSP #20555).
Aon is a Principal Partner of Manchester United.
Continental Re Summit
20
CONFERENCE
Harnessing
R
the potential
isk managers across Africa
will need the confidence to know they are
insuring with the right company, one that
will be able to deliver on claims payments
and risk management support, delegates
heard at the Continental Re Summit in
South Africa on 9 April.
More than 70 delegates from 20 countries across the
region heard Dr Femi Oyetunji, Group Managing Director
and Chief Executive Officer of Continental Reinsurance, say it
is imperative that Africa develops sustainable markets.
Speaking at the Changes and Challenges: Shaping the
context of the African insurance landscape 2015 Summit and
using the Ebola outbreak as an example, Dr Oyetunji says it
is vital business leaders across the region communicate more
often. “Our governments were slow to react,” he says, “but I
believe as business leaders we should be communicating.”
He says the outbreak could have been picked up on day
one and, managed properly, it would have been controlled
quickly, saving lives and preventing the devastating impact on
the economies of the affected region.
Crucially, Dr Oyetunji says, insurers and reinsurers must
become risk managers as well as risk-takers and must pass that
message on to insureds across the continent.
“As insurers, risk management should be as important as
risk taking. We need to move the focus from the traditional
role of risk taking to that of risk managers,” he adds.
Time to lead
Dr Oyetunji acknowledges that much of Africa remains in its
infancy in terms of insurance. He points to the pan-African
penetration rate of 3.5%, which compares to 5.4% in Asia
or 7.4% in the US. He also cites the premium volume of
$98bn generated by Allianz—a figure he says dwarfs African
premium income.
However, he believes it places African insurers and
reinsurers in a unique position. “It is time for us Africans to
lead and not follow on sustainability,” he urges. Without
suggesting the sector creates any form of cartel, Dr Oyetunji
says there is a real opportunity for dialogue and ensuring the
development of a sustainable industry.
Other key messages to emerge from the summit, entitled
‘The changes and challenges shaping the context to the African
insurance landscape in 2015’, were around the challenges of
retaining premium in Africa for the benefit of growing local
markets, as well as the challenges of finding the right people to
staff the businesses and in creating sufficient awareness of the
benefits of insurance among the general population.
In terms of regulation, Dr Oyetunji says: “The regulators
are asking ‘what do you want?’ so let’s make sure we engage
with regulators across the region and make sure they
understand the challenges we face as business leaders.”
He also urges regulators to help break down individual
country boundaries so businesses can expand both regionally
and across the continent. While concerns were raised about the
number of European and US firms, as well as those from Asia
and the Middle East, expanding into Africa, delegates agree
there is still an opportunity for local insurers to make more of
the opportunities.
“The bigger the cake we can bake, the more we can
individually benefit from it. Let’s put competition to one
side to make the overall cake better and then it is up to us
individually how big a slice of the cake we get,” urges Dr
Oyetunji.
Strategic approach
Keynote speaker Butch Bucani, Programme Leader for the
Visa barriers
have become
a business risk
across Africa
Sustainability will be crucial for insurers
and reinsurers looking to develop across
Sub Saharan Africa, delegates heard at
the recent Continental Re Summit
UNEP FI Principles for Sustainable Insurance Initiative,
asks: “How can we harness the full potential of the African
insurance industry—as risk managers, risk carriers and
institutional investors—to promote economic, social and
environmental sustainability?”
He explains that sustainable insurance is a strategic
approach where all activities in the insurance value chain,
including interactions with stakeholders, are done in a
responsible and forward-looking way by identifying, assessing,
managing and monitoring risks and opportunities associated
with environmental, social and governance issues.
“Sustainable insurance aims to reduce risk, develop
innovative solutions, improve business performance
and contribute to environmental, social and economic
sustainability,” he says, quoting the ‘Principles for Sustainable
Insurance,’ UN Environment Programme Finance Initiative,
2012.
Mr Bucani says examples of insurance industry solutions
for sustainable development can be split down into several
areas. These include:
As risk managers:
n Research on health, disaster risk reduction and climate
change adaptation and mitigation
n Catastrophe risk analysis and models that integrate
natural ecosystems, climate change and socioeconomic
vulnerability factors
n Risk management processes and insurance underwriting
guidelines that promote better health, disaster risk
reduction and climate change adaptation and mitigation
n Literacy programmes on health, climate and disaster risks
and insurance
n Programmes that improve disaster awareness and
preparedness in communities
n Risk management tools for clients and suppliers to
reduce climate and disaster risk.
As risk carriers:
n Insurance for low income people, people with disabilities,
people with HIV/AIDS, ageing populations
n Insurance for climate risks and natural hazards
The difficulty of obtaining visas to travel across
Sub Saharan Africa has become a major obstacle
to business and should be included as a major risk.
Dr Femi Oyetunji, Group Managing Director/
Chief Executive Officer of Continental Reinsurance,
called for an Africa without boundaries for
business people to work and travel freely across
Sub Saharan Africa. Citing the example of one
delegate who failed to get a visa in time and
another delegate who was faced with sitting at the
international airport in Johannesburg for hours
until the clock ticked round to midnight, he says
n Insurance for renewables, green buildings, zero and lowemission transportation, energy efficiency, green rebuilding
n Insurance based on usage (e.g. pay-as-you-drive, pay-howyou-drive)
n Insurance for forests
n Insurance for environmental liabilities.
As institutional investors:
n Investment in inclusive finance, healthcare
n Investment in climate and disaster-resilient infrastructure
n Investment in sustainable agriculture and forestry
n Investment in renewables, green buildings, zero and lowemission transportation
n Investment in sustainable water management, sustainable
waste management.
Underpinning
the economy
The importance of insurance in sustainable development, he
says, hinges on the way insurance underpins the real economy
across the continent.
“It is a very important conversation in Africa,” Mr
Bucani says. He believes 2015 will be a critical year with the
emergence of disaster reduction initiatives and with sustainable
guidelines due to emerge from a meeting in New York in
September.
“These big policy frameworks will set the trajectory for
development of the entire world for the next 15 years,” he
stresses. “We want to make sure insurance has a powerful voice
in the development.”
Echoing Dr Oyetunji’s view that insurers should become
risk managers as well as risk-takers, Mr Bucani admits a lot
of people were not fully aware of the power of insurers as
institutional investors.
He says many people see Africa as some kind of ‘safe
haven’ with few major catastrophes, however, he warns
environmental sustainability is not just about natural
catastrophes. He points to the large volume of natural
resources extracted across Africa and warns of the degradation
of those natural resources—all part of sustainability.
governments must sort out this problem.
“We are business leaders but visas have
become a business risk when you are unable to
travel from one country to another.”
He stresses: “We want to identify such risks,
discuss them in detail and consequently develop
some kind of plan. Government officials are able
to travel freely but are otherwise engaging in
tit-for-tat visa requirements, which are stopping
business.”
Delegates acknowledged governments have
a responsibility to stop economic migration but
agreed business travellers, who are clearly
attending meetings or an event, should not be
subject to such stringent visa requirements.
They said the habit of holding passports for up
to three weeks and then only providing a few hours
of access was forcing business leaders to abandon
plans to visit key markets or attend crucial events.
The problem is extreme between certain
countries, such as South Africa and Nigeria, but is
affecting travellers from a large number of African
countries, as well as those travelling on European
passports.
Continental Re Summit
22
CONFERENCE
Potential to match
African lions with Asian tigerS
T
he opportunity to grow trade across Africa to
compete with other regions of the world has never
been better, according to Eyessus Zafu, Chairman of
United Insurance Ethiopia.
He says there is a real chance to forge new
business partnerships globally and to re-examine the
Chinese model, in which investors come in, develop a project and then
leave the continent with the profit.
Mr Zafu suggests the Indian model of building the domestic economy
would work well for Africa as a region and business leaders across the
continent should look to intra-African trade, as well as that with overseas
investors.
Like other commentators, Mr Zafu points to the increasing African
population and the growing middle class in particular as paving the way
for new opportunities. Mr Zafu pointed to the number of Africans still
living in poverty who could become the consumers of the future if given
the right economic environment and the right opportunities.
“In 2010 some 48.5% of Africans were living on less than $1.25 a
day, now that figure has reduced to 40%,” he says.
For the future, he says, governments should look for ways to
diversify economies and make economic growth more inclusive, if it is to
be sustainable.
The key, Mr Zafu says, “is building on our recent gains and not sitting
on the laurels of past successes”. He says much of the past growth has
come off the back of public projects and governments need to look for
more sustainable growth models for the future.
Tinashe Mashoko, Associate Director at PwC, brought the debate
to the insurance market. He believes the future is also bright for the
insurance and reinsurance sector, identifying six key factors:
1. Resources boom and economic growth
2. Infrastructure development and industrialisation
3. Rapid urbanisation and rising employment levels
4. Demographic and social change
5. Environmental change and technology
6. Political stability and regulatory change
Going into each of these in more detail, Mr Mashoko explains the
basis of his optimism, offering these factors:
Resources boom and economic growth
n N
ew found wealth in resources driving RoA growth of 5%+
n Africa has: one-third of global mineral reserves; one-tenth of global
oil reserves; two-thirds of the world’s diamonds; 27% of the world’s
arable land; and 60% of the world’s uncultivated arable land
n New oil and gas discoveries in Mozambique, Ghana, Kenya and
Uganda
n Agriculture output: $300m to increase to $500m by 2020; $1tn by
2050
n Industrialisation of agriculture an opportunity for crop cover
n Nigeria has a strong economy and a large population with rising
affluence
n Kenya is central to the east African market, which is showing strong
growth underpinned by combined population of 200 million
n South African economy constrained—high energy costs, rising
unemployment, unsettled labour markets, currency depreciation
n Cross-border investment by multinationals and regional players.
Infrastructure development
and industrialisation
savings products
n Increase in working population encouraging for insurers
n U
nemployment worrisome but robust economic growth should
overcome
n Y oung population increasingly tech-savvy with powerful social
networks
n S
ocial media plays a role in improving business models: awareness
of products and benefits; improved data capture and analytics with
more knowledge-driven businesses; rise of alternative distribution and
disintermediation; rise in customer-centric business models.
n Africa’s infrastructure lags the rest of the world—for example, 30%
of the African population has access to electricity, compared to 80%
worldwide
n PwC estimates infrastructure investment will reach $180bn per
annum by 2025—Ethiopia is building Africa’s largest hydro-electric
plant; Kenya is building the world’s largest single geothermal plant
n Foreign direct investment increasing, with China expected to invest
$1tn in the next decade
n Demand for project insurance for infrastructure investments to
increase
n Insurers with strong balance sheets could underwrite projects
against: events of default; breach of contracts; and currency
inconvertibility
n Increased Africa connectivity increases transport and logistics
insurance
n Strong inter-Africa trade: SA (35%), Kenya (16%), Nigeria (12%).
Environmental change and technology
Rapid urbanisation
Political stability and regulatory change
n Urbanisation estimated at the rate of 4% per annum—most rapidly
urbanised region in the world
n By 2050, Africa will account for 24% of the world’s population
n Approximately 60% of Africa’s population will be in urban regions
n 400 million Africans will have migrated from rural areas
n Lagos will be the 12th largest city in the world
n African workforce will surpass China by 2024
n Rise in insurable assets and positive economic growth
n Rapid urbanisation will spur demand for: healthcare services;
housing and urban infrastructure; infrastructure development and
industrialisation; protection of assets; and increased savings.
n M
aturing democracies and smooth transition of governments is
positive
n Improved risk management and governance levels—adoption of ICPs
n P
romotion of better internal standards and controls
n Increased capital requirements have created fewer, stronger insurers
n R
isk-based capital management creates capacity and clearer risk
appetite
n Improved financial integrity and disclosure, e.g. IFRS adoption
n Improved financial stability, trust and market confidence
n B
etter consumer protection and tightening of market conduct
n Increased access to insurance and promotion of financial inclusion
n P
ension reform increases compulsory private sector savings/
protection
n C
ompulsion of certain insurances—motor, oil and gas, workman’s
comp
n E mpowerment, indigenisation, local partnership requirements for
foreign direct investment
n N
eed to guard against increased costs and complexity of compliance.
Demographic and social change
n Urbanisation will lead to a rise in the middle class
n Improving literacy levels aided by insurance education
n Rest of African middle-class to double from 15 million to 30 million
by 2030
n Impact of spending power on retirement funding, insurance and
n R
ecent increase in intensity and frequency of cyclones, hailstorms,
droughts and floods
n N
ew technology helping management of damage and costs, for
example: predictive modelling; early warning sensors; weather
trackers; on-board sensors; health monitors; better risk pricing (cat
modelling); and (alternative risk) transfer
n S
ophistication and innovation required by insurers in structuring risk
sharing and risk transfer deals
n R
ise in the use of technology across Africa: 70% of Africa’s
population now has a mobile phone subscription; estimated 800
million mobile phones across Africa (from a 1 billion population);
20% of Africans were online in 2014—double 2010; more people
have mobile banking than traditional bank accounts in nine countries;
Nigeria e-commerce generating $2m in transactions per week
n T echnology expected to be a big game-changer for business models.
Brain drain poses significant
risk to business sustainability
A
frica’s brain drain is
posing a significant risk to
business, delegates were
warned at Continental Re’s
CEO Summit in South Africa last week.
Odunayo Bammeke, Group General
Manager of the Nigerian National
Petroleum Corporation, warns it is
among Africa’s greatest risks, saying:
“Why should any African youth want
to come back and stay in Africa given
the political and economic environments,
if they have other opportunities
Africa’s first
pan-African
insurance and
reinsurance
journalism
awards launched
outside the continent?”
He told delegates that young people
were more enlightened and were aware of
the choices they have but he says business
leaders have a job to do in convincing
young people of the value of staying or
returning to Africa.
“We need to offer more training and
help them enhance their careers here in
Africa. We have a responsibility and a
duty,” he says.
Young people bring fresh approaches
and a much needed energy to business,
Journalists from every African country across the
continent have been invited to participate in the
Continental Reinsurance Journalism Awards 2015.
The awards have been launched to improve
and develop insurance and reinsurance reporting in
Africa and to encourage journalists to develop their
knowledge and expertise, as well as recognise the
outstanding work of journalists from across Africa.
Dr Femi Oyetunji, Group Managing Director/
Chief Executive Officer of Continental Reinsurance,
says: “The insurance and reinsurance sector has
a valuable role to play in Africa’s economic growth
and development and we want to recognise the
while encouraging innovation, he adds.
“We have an opportunity to create a
bridge to the next generation. The critical
skills are the capacity to think, manage
change and innovate. Any business today
that does not innovate will not survive.”
Identifying talent that already exists
within the business is key. “It is important
for us to attract and also to retain leaders
in our sector.”
Mr Bammeke urges business leaders
to do more themselves, not just in
terms of identifying their successor but
respected contribution of the media to the sector’s
growth.”
The four categories in the 2015 awards are:
1. Best re/insurance feature article
2. Best re/insurance news reporting
3. B est re/insurance industry analysis
and commentary
4. P an-African reinsurance journalist
of the year award
An international judging panel comprising
industry experts and academics in journalism will
judge the Continental Reinsurance Journalism
Awards 2015 entries. It will evaluate all submitted
in mentoring young people within the
business. He also believes the government
has a responsibility in terms of improving
the quality of education.
But, he says, all the initiatives will
come to nothing if barriers across Africa
are not eased to allow greater pan-African
movement. Echoing the words of Dr Femi
Oyetunji, Group Managing Director/
Chief Executive Officer of Continental
Reinsurance, Mr Bammeke says visa
restrictions are becoming a major barrier
to business.
material according to the quality of information
and how it contributes to raising awareness of the
insurance and reinsurance sector in Africa.
Each entrant must submit their published
article together with their name, media
organisation, the date the article was published,
their brief profile and photo, together with a 250word motivation for writing their editorial article.
All submissions must be submitted by
31 December, 2015 to: CREJournalism@
brandcommsgroup.com
The winners will be announced at a ceremony
in April 2016.
UPCOMING EVENTS
SAVE THE DATE!
■ÊÊMALTA INTERNATIONAL RISK CONGRESSÊ
1 & 2 June 2015Ê
■ÊÊRISK FRONTIERS—SOUTHERN AFRICA Ê
23 July 2015Ê
■ÊÊRISK FRONTIERS—EAST AFRICA Ê
13 November 2015Ê
-ÌÊՏˆ>˜½Ã]Ê>Ì>
>LœÀœ˜i]ʜÌÃÜ>˜>
>ˆÀœLˆ]Êi˜Þ>
SUBSCRIBE TO OUR
DIGITAL NEWSLETTERS
MAKE SURE YOU
DON’T MISS OUT!
■ SUBSCRIBE TO: COMMERCIAL
RISK AFRICA AT—
WWW.COMMERCIALRISKAFRICA.COM/
CRA-SIGNUP/
■ SUBSCRIBE TO: COMMERCIAL
RISK EUROPE & INTERNATIONAL
PROGRAMME NEWS AT—
WWW.COMMERCIALRISKEUROPE.COM/
PPP'<HFF>K<B:EKBLD:?KB<:'<HF(>O>GML
^o^gml9\hff^k\bZekbldZ_kb\Z'\hf