Côte d’Ivoire reinforces key standing in regional insurance industry

In April 2016 the Inter-African Conference of Insurance Markets (Conférence Interafricaine des Marchés d’ Assurances, CIMA), which oversees insurance regulation in 14 African countries, including Côte d’Ivoire, adopted a major reform aimed to protect the region’s reinsurance industry. Two years on, changes appear to be paying off for local companies, reinforcing Côte d’Ivoire’s regional position in the reinsurance industry.

CIMA

The reform of CIMA’s Article 308 imposed more stringent limits for insurers willing to take out reinsurance in countries located outside CIMA, which covers Côte d’Ivoire, Gabon, Cameroon, Benin, the Central African Republic, Congo, Mali, Niger, Guinea, Equatorial Guinea, Chad, Togo, Senegal and Burkina Faso.

Under the changes, cover for small-scale risks – such as accident, health, automobile and life insurance – which could previously be 75% reinsured outside the zone, must now be 100% ceded locally. The proportion of medium-scale risks that can be reinsured outside CIMA was reduced from 75% to 50%. Due to the lack of strong regional players in francophone West and Central African countries, an exception was made for the costliest of risks – related to ships, trains and airplanes – which can still be reinsured up to 100% abroad.

The reform’s objective was to strengthen the regional reinsurance market, and help local firms grow and collect more premium. It was estimated that 66% of CIMA reinsurance business in 2015 was placed abroad, while only 34% of sector activity was captured locally.

“The goal of reform is that more premium remain within the CIMA zone to help local reinsurers grow and become stronger,” Mouhamed Diane, Abidjan-based West Africa underwriter at CICA-RE, told OBG. “The idea is also that premium can be used to participate in the countries’ development. If more premium remain here, local reinsurance companies will be able to invest them in the region and therefore sustain economic growth.”

In a July 2017 report, Casablanca-based consulting firm Finactu calculated that new rules could potentially bring at least CFA68bn (€102m) of additional premium to firms operating in the CIMA area in the short term. Small-risk premium would grow from CFA33bn (€50.3m) to CFA93bn (€141.8m) while medium-risk premium would increase from CFA53bn (€80.8m) to CFA75bn (€114.3m). By contrast, and because of the added pressure on local reinsurers from the small- and medium-scale risks segments, the proportion of large risks placed locally would decrease from CFA14bn (€21.3m) to zero, according to Finactu’s forecasts.

Local Firms

Although it is too early to measure the economic benefits of the reform, local reinsurers are growing two years after introduction of the changes. Nigeria’s Africa Re, the sector’s leader in Côte d’Ivoire and CIMA, saw revenue grow from 10% to 15% annually. Olivier Nguessan-Amon, the firm’s regional director for West and Central Africa, told media that, since the changes, the company’s premium sales have increased in segments that used to be reinsured abroad, especially in the maritime transport of commodities such as cocoa, coffee and rice, and manufactured goods.

Other local firms are also benefitting from the reform. Lomé-based CICA-RE, which raised its capital from CFA20bn (€30.5m) to CFA50bn (€76.2m) in 2017, increased its revenue by 22% from CFA38bn (€57.9m) to CFA46.4bn (€70.7m). For its part, Ivorian reinsurance firm Aveni RE Assurance increased its capital from CFA10bn (€15m) to CFA16bn (€24m) and was set to reach CFA22bn (€33m) by late 2018. The company’s net profit increased 29% in 2017 to CFA1.6bn (€2.4m).

“Business is going very well, even though there are some divestments taking place,” François Nana, internal audit and risk management director at Aveni RE Assurance, told OBG. “The claims ratios in the region are better than in most parts of the world, and the level of profitability is good. There are claims of course, but the sector is admittedly profitable, which is certainly not the case everywhere,” Nana added. The company’s claims ratio improved from 56.2% in 2016 to 37.04% in 2017.

Foreign Players

Another effect of the reform has been that foreign reinsurers are increasingly seeking to enter the CIMA market. The UK’s One Re started operations in Libreville, Gabon in November 2017, while Germany’s Hannover Re, the world’s third-largest reinsurer, opened a representative office in Abidjan in December 2017. In February 2018 the company was granted an operating licence for the CIMA region. The company said it seeks to cover health and life insurance, two segments that can no longer be taken out abroad.

The new regulation also pushed international companies that used to operate but had no formal presence in the region to ask for an official operating licence. Until 2015 CIMA’s reinsurance sector has remained without a specific legislative framework. In 2015 new rules were introduced to the insurance code – Book VIII – requiring companies to get a formal licence to be allowed to operate in the region. The minimum capital of foreign companies’ subsidiaries was set at CFA10bn (€15m), while representative offices were asked to have capital of CFA1bn (€1.5m). As a result, between November 2017 and January 2018 Kenya Re, ZEP-RE (Kenya), WAICA Re (Sierra Leone) and Société Centrale de Réassurance (Morocco) requested – and obtained – licences for their offices located in Abidjan.

“For a long time, reinsurance in the CIMA region was not fully regulated. But when anglophone markets like Ghana and Nigeria started to protect themselves, the regulator decided to also set up more rules for the CIMA region as well. One does not want to see the reinsurance premium placed abroad; it is important that premium be reinvested where they have been collected,” said Nana. “So now, if a foreign reinsurance firm wants to work in the region, it needs to install formal operations here. It is not protectionism; it is regulation.”

Regional Centre

With many firms locating their offices in Abidjan, the recent moves have reinforced Côte d’Ivoire’s key position for reinsurance in the CIMA zone. The country is already the largest insurance market in the bloc, accounting for about a third of the sector’s revenue. In September 2018 Kenya’s ZEP-RE signalled its plan to relocate regional operations for the CIMA zone from Douala, Cameroon to Abidjan.

“Abidjan has become the regional centre for reinsurance. Many reinsurers are establishing their bases here,” Diane said. “Abidjan is a strategic location because you can easily cover francophone West and Central Africa from there. The business environment is also good. The region as a whole is very attractive, so more companies will probably seek to enter the market in the future.”

African reinsurers will need to upgrade their technology systems and risk-measurement tools, and absorb larger risks while increasing their capacity to adapt to international standards. In Côte d’Ivoire, the two largest players remain CICA-RE and Africa Re, two intra-governmental African reinsurers. With an 80% share of the Ivorian market, Africa Re is by far the biggest player. In 2017 it ranked 41st in the world among reinsurance companies, with a premium of $747m, compared with $37.8bn for Munich Re and $34.8bn for Swiss Re.