The Africa Continental Free Trade Area Agreement (AFCFTA), will trigger a positive transformation of the reinsurance market in Africa at large, says AM Best.
The international credit rating agency says that successful development of the AfCFTA, which was launched in July 2019, has the potential to significantly boost trade across Africa and support national markets as they grow.
The impact the initiative may have on the African reinsurance segment is unclear, but it may yield some positive benefits due to the inevitable cross-border nature of reinsurance markets.
“The African continent already benefits from a number of overlapping free trade zones that include the Economic Community of West African States (ECOWAS), the East Africa Community (EAC), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COM BSA).”
According to the AM Best report, barriers to African reinsurance markets have remained high and can be traced to protectionist local regulators. It stated that the expansive geography of the continent and relatively small market size coupled with significant cultural and policy position differences have limited the level of potential interest from global participants.
“Many of the reinsurers that were classified as national operators a decade ago have managed to position themselves in a pan African capacity today, sometimes with hubs across the continent that allows them to better access their target markets.”
It further stresses that the presence of mandatory cessions in some markets may restrict the opportunities available to foreign participants as they play an important role in supporting the underlying insurance markets, with many of the mandatory cession recipients maintaining a mandate that goes beyond a purely commercial existence.
Source Middle East insurance Review