How reinsurance is reconstructing national assets from insurable losses
Reinsurance claim payments are seldom known or talked about as this aspect of insurer/reinsurer relationship is guided by rules and ethics maintained by industry players for good reputation.
The amount and the speed of the claim settlement is often the subject of discussion. However, when losses occur which impacts the economy of a country, reconstituting the damaged economy is largely done through insurance /reinsurance claim settlements in proportion to their exposure. Therefore, it is fitting to reflect on the role reinsurers, especially Africa Re, play in reconstituting national assets in Africa.
Africa Re as a pan-African reinsurance company has over the years participated in the payment of many large claims without which the economy of the concerned countries would have been seriously affected. This is as a result of the limited capacity of most of the insurance companies in the continent. Between 2012 and 2016, Africa Re paid a total of $1.66 billion in claims which constitutes an average of $333million annually.
It is worthy of mention that in some regions, insurers have the tendency to offload their financial burden onto the reinsurers. Thus, reinsurers are known to be the main carrier of risks so much so that when a claim arises, they are the key payers. For example, the disastrous fire accident at the International Airport in Kenya, claimed $ 19.6 million out of which $ 18.96 million was settled by reinsurers. In this case, reinsurers’ contributions amounted to almost 96 percent out of which Africa Re contributed 25 percent.
In the same country, a pharmaceutical warehouse together with its stock were totally destroyed in a fire. $ 7.7million was paid as a claim and $7.36 million was fully compensated by reinsurers out of which Africa Re contributed almost 30 percent. Whilst the cost of damages for buildings was adjusted at $ 1.7million of which reinsurers fully reimbursed $ 1.2million which accounts for 72 percent.
In East Africa, AfricaRe paid claims worth a total of $335,890,076 in the last five years for all major classes of business like Motor, Fire & Engineering, Aviation, Marine including life and miscellaneous accidents. Miscellaneous accidentswhich include mainly medical business accounted for almost 44 percent of loss followed by fire with approximately 26 percent. For the full year 2016 only, the total claim paid wasS$ 64,517,255.
In West Africa (Anglophone) Africa Re paid a total of $245million on claims in the last five years. This enabled the replacement of national assets in various economies in Ghana, Nigeria, Liberia, Sierra Leone and The Gambia
In the Maghreb region, the Corporation paid $121million on claims during the same period.This contributedin reconstructingof different sectors of the economies in Algeria, Morocco and Tunisia.
During the Tunisian revolution (ArabSpring) of 2012,Africa Re had to pay a lot of large claims to insurers as a result of the negative impact of the revolution on some important companies in the country. In Algeria, in 2013 and 2015, SKH (Energy) and ENIE (NTIC) could have succumbed if they were not insured and then reinsured. Same thing in Morocco with DJOUJA fire accident and the drought of 2016.
In North-East Africa and the Middle East, the Corporation paid a total claims of US$189.5million by the Cairo Office, and US$56.5million by the Abidjan Office for the same period.
Africa Re’s subsidiary in South Africa, since inception in 2004 up till now has paid a total of over $160 million towards large catastrophe losses in the region.
Reinsurers not only reconstructeconomiesafter a loss but also contribute towards the society likein personal accident cases, third-party bodily injury claims and life insurance.
Covers for life business that have mainly required reinsurance in the recent past are in mortgages and credit life where sums assured are generally high.
These classes of life assurance support the growth of an economy by providing assurance to financial institutions who would then be able to grant loans to customers to support businesses and build houses for domestic and commercial use. The figures for group life have also continued to increase with higher salaries. Another area of group life schemes that contributed to the losses were the security services that have huge numbers of members with risky occupations. Critical illness and disability claims increase every year. People now understand the need for life and medical insurance to enable them to manage their lives during terminal illnesses and to also fund their medication and change of lifestyles. Reinsurers have been very supportive to insurance companies since most of them have retentions belowUS$ 20,000 yet have policies with sums assured running above US$ 2 million.
The above examples clearly illustrate the dominance of reinsurers and their significant role in reconstructing the economyby financially re-storing business, re-building and re-establishing properties; and most importantly bringing back the policyholders in the same financial position as they were prior to the loss.
The importance of reinsurance is reflected in the costs insurers are willing to pay to acquire reinsurance protection and the fact that without adequate protection, insurance companies might not be licensed to do businesswhen considering the minimum solvency requirements. Even without legal requirements, reinsurance is important because without it, a company would be exposed to liabilities that are beyond its capacity. Shareholders’ funds would be at risk as one large claim might wipe out the whole of the shareholders’ investments. Risks threaten our prime objective, which is survival in the face of accidental occurrence.
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