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Relief for African investors as insurers pool resources to lower risks

Some problems like credit, currency and political risks discouraging investment into Africa will soon start to reduce with the coming of Africa Specialty Risks (ASR).

ASR, coming to join forces with other top reinsurers including Africa Re with head office in Nigeria, shows greater strength for African market to attract more investment, a Nigerian underwriter notes.

According to experts, filling this coverage gap represents a significant step towards unlocking investment across the continent. So, building capacity among local insurers is an essential piece of this puzzle, as international investors and corporates have been limited to sourcing covers in the global market, says Mikir Shah, CEO of ASR.

Africa Specialty Risks (ASR) is a reinsurance business focused on the provision of bespoke risk mitigating insurance solutions founded in 2020 with financial backing from Helios and major international investors such as CDC, IFC and Fairfax.

According to Shah, ASR’s mandate is “focused on Africa and to deliver what those investing in Africa need in terms of risk mitigation.” To do this, ASR’s teams work closely with local insurers, providing training and, crucially, leveraging the company’s technical abilities to insure against complicated local risks.

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“We have technical skills that can complement and enhance local stakeholder capabilities,” Shah explains, saying, “This approach allows ASR’s experience of complex risk mitigation drawn from across the continent as well as other global markets to be deployed by local insurers who provide ASR with further on-the-ground knowledge.”

He further states that this kind of localised risk insurance can provide “real comfort to international investors and corporates.

“Credit and currency risks have long been seen by investors as a barrier to entry for African markets. Fluctuating exchange rates threaten returns and exits while political instability makes for challenging operational climates. Investors and businesses need to know that assets won’t be taken away or whittled down to zero…that’s the first step…then they can invest the money,” he states.

Therefore, for development finance institutions as well as private investors, helping Africa’s insurance market reach maturity is critical to achieving wider economic and social development goals.

Ultimately, political risk and uncertainty are not uniquely African phenomenon Shah highlights, stating that risk exists no matter where you are.

“With the COVID-19 pandemic providing the ultimate unforeseen event and political destabilisation in many Western markets, “we’ve seen a rebalancing of the perception of risk over the last 24 months.

“Political risk mitigation products play a critical role in building a healthy investment ecosystem no matter the market and were available in the West prior to their adoption in Africa,” he points out.

According to Shah, “Across the continent you’re now seeing awareness of different products…and that’s the most important part.” For the insurers across the continent, the priority is now to build out products specifically tailored to the African market. For ASR, this on-the-ground presence and knowledge are essential to building targeted products across country and regional levels, he says.

Building out African-focused insurance and reinsurance products now can also lay the groundwork to support businesses and investors against future risks such as climate change. “As insurance companies, we can’t have the same impact on climate change as other industries,” Shah explains, “but what we can do is have products that mitigate the impact of the volatility driven by climate change. Despite its minimal contribution to emissions, Africa is particularly vulnerable to the effects of climate change.”

He remains bullish about both the growth of Africa’s insurance sector and the economic development of the continent as a whole. “The innovation you get in Africa is on a different level because of the need,” he states. The continent has been a leader in the uptake of mobile money, for example, which has been used to solve specific challenges around financial inclusion and confidence in transactions.

Shah is confident that this same innovative approach will grow in the insurance sector, enabling investors and businesses to expand across the continent.

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