Africa Reinsurance Market Commentary: Capacity Trends, Renewals, and Regulatory Shifts

The year has got off to a busy start for Southern African reinsurers.

Cyclones in December and January caused fatalities, casualties and extensive damage in Mozambique and Madagascar; political violence in Mozambique left hundreds dead; and severe flooding affected South Africa and Botswana.

While political violence and terrorism remain constant perils on the continent, climate-related risk is expected to increase in the year ahead.

Increased demand for extreme weather reinsurance

Typically such events in Southern Africa include droughts, flooding and cyclones, but going forward reinsurers could begin to see a greater demand for cover for less frequent weather events, such as tornadoes.

Nomhle Ngwenya, an independent climate change and weather events expert, was recently quoted in the media as saying that in South Africa in January 2025 alone, three tornadoes were recorded. This followed two tornadoes that were recorded in November 2024.

Weather pattern data from 2014/5 compared to 2024/5 showed that extreme weather disasters had become more frequent and intense, Ngwenya said that more frequent extreme events were expected to occur in future.

We anticipate higher reinsurance demand for these extreme weather events this year, with reinsurers exploring parametric insurance solutions to provide faster payouts for weather-related claims.

Growth in parametric insurance

This brings us to our second trend for 2025: a projected growth in demand for parametric insurance, also called event or index-based insurance.

Parametric insurance is an agreement by the re/insurer to pay out should a predefined event (the ‘trigger’) occur. It doesn’t indemnify actual losses incurred but rather uses an index (a simple measure or parameter) that correlates with the insured’s financial loss. Payouts can be relative to the extent of the triggering event.

This fast-growing alternative to traditional indemnity-based reinsurance provides immediate payouts following the occurrence of the predetermined event, regardless of any actual losses incurred. There are no claims or loss adjustment processes.

Parametric insurance helps to address agricultural risks, natural disasters and infrastructure resilience, all prevalent in the African context.

Growing need for cyber risk coverage

African businesses are facing increasing cyber threats, with AI and machine learning expected to expose organisations to entirely new cyberthreats.

The biggest challenge for businesses will be maintaining pace with the development of malware and sophisticated AI-driven phishing attacks in areas where digital transformation is evolving quicker than cybersecurity investments.

So-called deepfake technology and automated social engineering will continue to raise the stakes in 2025, forcing reinsurers to provide comprehensive cyber cover to all their clients, not just high-risk businesses.

It’s anticipated that demand for cyber reinsurance will skyrocket in the year ahead.

Digital transformation and the rise of insurtech

New technologies may be furthering certain insurance risks, but they’re also disrupting and reshaping the re/insurance landscape.

Innovative technology such as blockchain, data analytics and AI are all improving insurance risk assessment and claims management. Specifically, insurtech allows for more effective product pricing, underwriting, contract and claims processing, and risk evaluation.

Grand View Research estimated the total Insurtech industry was valued at US$5.4 billion in 2022, a number expected to hit US$152 billion in 2030.

There’s no doubt that the influence of insurtech on the African reinsurance sector will continue to grow in 2025, as brokers and reinsurers begin to maximise these new tools for enhanced efficiencies.

Sustained growth for African reinsurance

The reinsurance sector in Africa is projected to continue its upward spiral in 2025, as local reinsurers capitalise on the hardening of the global reinsurance industry, and seek to retain more risk locally. The latter is especially true in the case of extreme weather events and the impact of drought and flooding on agricultural sectors as well as the increase in cybersecurity threat.

New lines of business and new geographies present additional opportunities for African reinsurers, along with anticipated growth in facultative reinsurance cover. There is scope for significant growth in the African reinsurance sector, and we expect to see progress in this regard during 2025.

Reinsurers want to understand where and why specific cover is being deployed; they want their cover to be valued; and they will continue to favourably support insurers writing multiple lines, as this ensures market diversity.

These were among the key insights coming out of Reinsurance Solutions Intermediary Services’ (RSIS) recent contract renewal process with cedants, which revealed a number of trends currently influencing the reinsurance sector.

Understanding the coverage that markets provide has become a hot topic. Reinsurers want to understand why certain capacity is needed, and where and how it is being used when placing business.

There has also been a shift from the soft market dynamics where, to a large degree, reinsurance had become a commodity purchase. Reinsurers want their capacity to be valued, and those cedants that are actively engaging reinsurers as partners will see this pay off in the long run.

Looking back at 2023 and some of the movements shaping these current trends, the market opened with more balanced trading conditions, offering cedants improved opportunities and maintaining key reinsurer relationships.

Capacity levels were generally sufficient across all classes, with increased consistency in contract wording and structural variations. Despite overall improvements, certain geographies and client segments encountered challenges in securing market-clearing pricing and structure, particularly in the casualty sector, which faced heightened scrutiny compared to property renewals.

Following the dip in 2022, traditional capital rebounded strongly in 2023. Some markets used hardened rates and more attractive deductibles to really grow their top lines in 2023, while some opportunistic markets entered into lines for which they were not particularly known.

Insured losses from natural catastrophe events were well above long-term averages in the first half of 2023, driven by relentless and severe convective storm activity in the United States. The period also featured numerous high-profile flooding, drought and wildfire events around the world, as well as major earthquakes in both Turkey and Syria.

Nevertheless, most reinsurers posted positive underwriting results, reflecting the benefits of the shift in pricing and coverage seen in recent years. The average net combined ratio across the leading reinsurers reviewed stood at 90.4%, down from 91.7% in the first half of 2022.

The second quarter of 2023 saw the biggest deployment of cat bonds ever seen, while alternative risk transfer solutions recorded their biggest moves upward, reflecting a departure from the capacity constraints experienced in 2022.

Overall, reinsurance capacity experienced a notable 10% increase, driven by a resurgence in sector capital and robust returns, with estimates nearing 20%.

Unlike previous years that were marked by major market corrections, this growth stemmed primarily from existing reinsurers, with no new entrants coming into the market.

From a renewals perspective, smoother operations reflected a concerted effort by all parties towards market balance amidst complexity.

Key takeaways from the year in review (and what this means for the months ahead):

1. Inflation continued to drive CAT property purchases and limits.
2. Capacity rebounded well in 2023 with a strong focus on ART. This is expected to continue in 2024 as cedants look for more efficient ways to protect capital.
3. Retro supply has levelled-off. Following steep increases in 2021 and 2022, retro markets consolidated their positions in 2023. This boded well for primary cedants, which saw risk-adjusted increases in line with portfolio growth and any loss activity experienced.
4. Aggregate covers are starting to be placed again. Given the frequency of events seen over the past two years, markets are more open to this. It is anticipated that this will filter into the South African market over the next 24 months or so.
5. Deductibles remained stable in the US and European markets. Closer to home there was still pressure on cedants to increase their CAT and per risk deductibles: changes that many of the big players had already made in 2022. Last year these changes were most keenly felt in the mid-tier and UMA spaces.

The Covid-19 pandemic and its associated worldwide lockdowns had a significant impact on the insurance sector. As with previous recessions, personal lines were less vulnerable than commercial lines to the global disruption, and although initial data shows some positive growth, long-term growth is expected to remain low. How does the insurance industry not only recover, but boldly move forward, from this setback?

Slow growth trajectory

According to the McKinsey Global Insurance Report 2022, premium growth rebounded in 2021 after slowing down in 2020. This was compared to growth of more than 4% per year between 2010 and 2020. Profits too rebounded in 2021, after falling by 15% between 2019 and 2020.

According to the most recent survey by Swiss Re Institute, real growth will remain below-trend over the next two years. It forecasts 0.8% growth in global non-life premiums this year in real terms, and 2.2% growth for 2023, based on the ongoing rate hardening, most notably in commercial lines. Regionally speaking, Middle East and Africa looks promising compared to other regions, with stable non-life premium growth predicted.

Global life premiums, the institute forecasts, will contract by 0.2% in real terms in 2022, and increase by 1.9% in 2023 due to increased risk awareness in all markets.

Barriers to growth

The key factors challenging industry growth are low interest rates, pricing pressures, and slow organic demand in mature markets.

Insurers are also facing mounting regulatory challenges, both related to the pandemic, such as business interruption, worker’s compensation and solvency concerns, and unrelated to the pandemic, such as the rise of AI, social unrest, climate change, and concerns around cyber security and data privacy.

From a customer perspective, trust, one-size-fits-all solutions, and slow digital adoption are also hampering growth.

Trust in financial institutions is near an all-time low. According to the 2022 Edelman Trust Barometer, only 54% of respondents trust the financial services industry, 10 percentage points lower than the average for other industries in the report. Trust is fundamental in insurance, as insurers have a much bigger role to play in society than just protecting risks.

Further, customers today do not simply want financial protection, they want personalised solutions that fit into the context of their day-to-day lives, whether that be when buying a car, planning for retirement or starting a business. Customers expect insurers to go beyond their risk-transfer obligations, and offer end-to-end solutions that cover risk prediction, prevention and intervention, and to underpin those services with powerful digital and data capabilities.

To that point, automation and AI are already changing the way insurers interact with consumers across the value chain in areas such as product design, underwriting, pricing and claims. Insurers must fully embrace the digital future by leveraging technology to improve product offerings, pricing and customer engagement.

Digital technologies will only reward those companies that can innovate and quickly adapt to consumer need. As such, insurers need to be on the offense with the right strategy, capabilities and urgency needed to win.

A new approach is needed

The past two years called out the clear need to professionalise the business model, and move away from a pure capacity-building focus towards a more customer-oriented one.

Smart players are already making moves in this regard. They are reallocating capital and focusing on areas where they believe they can scale locally, invest for growth and innovation, and make significant improvements to productivity.

This approach is going to be critical if the sector is to overcome the slow growth projections, and maintain pace with other industries that are already transforming and reinventing themselves to meet consumers’ expectations and changing needs in our swiftly evolving society.

While such an approach would naturally take into account new customer-centric product innovations and digital transformation, the one area it must prioritise is the overhauling of the very character and nature of insurance companies. By this it is meant not what insurance companies offer, but how they intrinsically are, how they exist in the world.

ESG: an imperative for the future of insurance

Environmental, social and governance (ESG) considerations must become a core feature of the insurance industry’s business model. Company culture, diversity, and ways of working to attract and retain talent must be totally reimagined, and the productivity imperative must be addressed. CEOs too must be reinvented to become real role models in these pivotal times of change.

Within the broader ESG focus area, the issue of climate change is gaining traction. This presents insurers with an opportunity to work with customers, both to help them better adapt to this risk by investing in more resilient infrastructure and supply chains, and by providing advice to help them address the physical and transition risks associated with climate change.

To successfully do this, insurers will need to develop a deeper understanding of climate risk in portfolios; rebuild their risk models and pricing assumptions; create new climate-related products and services; and work with other partners to mitigate climate risks.

According to Deloitte insurers can actually accelerate climate risk mitigation by promoting climate mitigation products and risk management services, testing the appetite for new products and risk management requirements, and training staff on climate literacy.

Further, they should provide incentives by promoting decarbonisation efforts for policyholders via reduced premiums, and supporting low-carbon technologies and start-ups with customised coverage.

Deloitte also recommends that insurers expand their risk mitigation offerings, by providing risk advisory services to improve clients’ risk mitigation understanding and approach; to create new risk-transfer offerings to enable capital flows towards green solutions; to support the sustainable decommissioning of carbon-intensive assets; and to develop solutions for reducing climate liability and environmental litigation.

The pandemic may have sent markets into a spin, but it also brought with it the opportunity to change. In global insurance, that includes the chance to change the way we operate and respond to the most pressing, current risks facing the planet.

Any meaningful change in this regard will require collective action across all sectors of the industry, including public-private partnerships in which insurers collaborate with regulators, local governments and policy makers to effectively mitigate these threats.