Despite significant economic and in some instances political headwinds rendering the operating environment challenging, insurance and reinsurance companies within the Conférence Interafricaine des Marchés d’Assurances (CIMA) zone continued to grow profitably in recent years, according to A.M. Best.
In a new Best Special Report titled, Reforms in the CIMA Zone Pave the Way for Market Rationalisation, the ratings agency said that whilst growth has been curtailed by lower economic activity, operating performance remained good, benefitting from relatively low claims levels.
Furthermore, legislative changes in the region aimed at increasing premium retention within the CIMA zone and bolstering insurers’ capital and surplus are expected to help create a stronger market prospectively.
“The growth experienced in the CIMA insurance market has not been to the detriment of earnings, with operating profitability underpinned by solid technical results and good and stable investment returns,” said Charlotte Vigier, Senior Financial Analyst, A.M. Best.
“Local insurers and reinsurers are exposed to a challenging environment, which is subject to instability. In particular, political risks and social unrest have the potential to rapidly and adversely affect a company’s financial strength,” added Ghislain Le Cam, Director, Analytics, A.M. Best.
“Enterprise Risk Management (ERM) is the key rating factor on which the reforms made to the CIMA Code in 2016 may ultimately have the most impact. Based on A.M. Best’s experience, governance and ERM are areas where CIMA companies tend to lag behind their global peers. The regulatory changes implemented should encourage insurers and reinsurers to strengthen their technical capabilities, which, in the longer term, should translate into improved risk management and governance practices. This could be credit positive.”
A.M. Best believes that the credit fundamentals of the insurers operating in CIMA countries will remain resilient in the medium term. Premium volumes in the region are expected to increase in 2018, driven by a recovery in the non-life business segment as macro-economic conditions in most member states improve.
At the same time, A.M. Best expects insurers to also benefit from strong demand in the life segment as populations become more aware of the benefits of insurance protection. In parallel, the operating profitability of direct insurers in the region is expected to remain at a good level, supported by stable pricing and a claims environment leading to sound loss ratios. Balance sheet strength of CIMA insurers should also benefit from the requirement to increase paid up capital to CFA 5 billion by 2021. However, A.M. Best expects country risk to remain an offsetting credit factor.