By JAMES MUYANWA –

THE sustained hemorrhage of huge amounts of funds in form of reinsurance premiums has continued smacking the insurance industry in Africa.
This is, mainly, because – globally– the sector is dominated by the wealthy developed countries mostly from Europe and the Americas.
For instance according to the 2013 KPMG sector report on Insurance in Africa, the Group of Seven (G7) alone accounted for nearly 65 per cent of the total premiums even though the seven countries account for just 10 per cent of the global population.
The report indicates that in those seven developed countries, an average of US$3,910 was premium per capita in 2012.
This is as compared to the average $120 per person which was spent on insurance by the citizens of the emerging economies.
For the reinsurance, which is the insurance companies’ sharing of risks by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of disaster, therefore, the situation is not different.
An official from a Pan-African Reinsurance Company says there is need for countries in the continent to come up with ways of minimising externalisation of premiums to help grow the local economies.
Continent Reinsurance executive director, Lawrence Nazare says that Africa needs to grow its insurance sector using local investments to the level where it will retain most of the premiums.
Continental Reinsurance is the largest private insurance player in Sub-Saharan Africa, outside of South Africa, with a diversified regional footprint comprising six regional hubs based in Nigeria, Cameroun, Ivory Coast, Kenya, Tunisia and Botswana.
Mr Nazare said on the sidelines of the one-day media workshop on reinsurance held in Gaborone, Botswana which this author attended that insurance regulators in Africa need to curb wanton premium flights.
Currently, most of the premiums are externalised out of Africa by the foreign reinsurers since they invest heavily due to the seemingly limited financial capacities by most African insurance firms.
This leads to externalisation of the premiums which are supposed to be used to grow the local insurance industry and the host economies generally.
“The insurance regulators in Africa should come up with measures to ensure more of the premiums are retained in the countries. This will help grow the local insurance sector in Africa,” Mr Nazare says.
The KPMG attributes the situation mostly to low penetration levels of the insurance among the Africans due to low income levels.
According to Swiss Reinsurance, the total value of the African insurance premiums in 2013, for instance, was only $70 billion.
Comparatively, Africa’s share to the global market was only 1.5 per cent and its poor performance is even more visible when South Africa is excluded.
South Africa accounted for a lion’s share of $52 billion of the total African premiums while the rest was shared among the remaining 53 countries in the continent.
The situation is made even bleaker for other African countries in that from the little premiums the other countries generate in insurance and reinsurance only a small fraction is retained within the country.
Most of it is externalised by the external reinsurance companies.
For Zambia the situation is not any different as in some cases about 50 per cent of the total premiums are moved out of the continent.
Zambia’s Finance Minister Alexander Chikwanda once said that more than K400 million worth of premiums, translating into 49 per cent of the total premiums, was externalised from Zambia in 2010.
In his Insurance Talk column in the Times of Zambia, insurance expert and author, Webster Twaambo Jr wrote on the same subject that the huge ratio between the retained and externalised premiums warrants some careful analysis.
It would be worth seeing whether something can be done about it, he writes.
According to Mr Twaambo Jr a notable development from the situation was the government’s directive to for the Pensions and Insurance Authority (PIA) to include in the draft insurance bill a provision for the players to exhaust the local capacity before a risk could be reinsured outside the country.
But why do foreign reinsurance firms play an active role in the local African economies like Zambia’s?
PIA Registrar Martin Libinga says that lack of capitalisation of insurance firms has resulted in most premiums from this country being reinsured in other countries.
Mr Libinga says the new capital requirement, is the right way to go as most of the insurance companies are not well capitalised and that is one of the challenges insurance industry is facing.
“We think that once the capital requirement is raised, insurance companies will be able to handle huge risks,” he said.
Mr Libinga suggests that insurance companies either merge or use capital markets to assist them raise the capital requirement so that they can grow to the required level.
For Africa, as a whole, there is need to grow the reinsurance
companies as a way of curbing the premium flight outside the
continent.
Mr Nazare says as a pan-African firm, Continent Reinsurance ensures that all the premiums are retained within Africa.
He says the firm had made a deliberate resolve to invest within Africa, despite the availability of opportunities elsewhere, to help grow the continent through the sector.
Continental Re has a diversified regional footprint comprising six regional hubs based in Nigeria, Cameroon, Ivory Coast, Kenya, Tunisia and Botswana.
Established in 1985, Continent Reinsurance provides support to more than 200 companies in 44 African countries, including Zambia.
Generally the performance of Continent Reinsurance provides a ray of hope to the sector in Africa that more local firms will continue enlarging their horizons to the continental level.
For Zambia, the Insurance Bill of 2013 is viewed as the launching pad for the growth of the industry, particularly the reinsurance sub-sector.
When enacted the Bill which will repeal the Insurance Act, number 27 of 1997 will guide the effective regulation and supervision of the insurance industry.
The Insurers Association of Zambia (IAZ) says the enactment of Insurance Bill of 2013, will generally promote growth of the sector because of its progressive provisions.
According to IAZ president Shipango Muteto one of the critical issues the blueprint addresses is the shareholding structure of the insurance and reinsurance firms in the country.
The proposed document limits the shareholding level by a
foreign investor (s) to 70 per cent and pegs the minimum local ownership in an insurance firm to 30 per cent.
“An insurer or reinsurer  licensed under this Act shall have not more than 70 per centum of its prescribed share capital owned directly or indirectly, by a foreign entity and not less than 30 per centum of its prescribed share capital owned by Zambian citizens,” partly reads the Bill.
The current law allows foreign investors to have up to 100 per cent shareholding interests and this partly accounts for the continued externalisation of the premiums annually.
“Currently big risks are being reinsured outside the country with only 10 per cent being returned in Zambia.
“So once this bill is enacted, it will limit the amount of money going out of the country and will push the Gross Domestic Product (GDP) contribution to five per cent,” Mr Muteto says.
The Bill could just be the panacea the sector in the country has been awaiting for, to rise from its current slumber!