A.M. Best Awards Pass Mark to African Insurance Markets

A.M. Best, the international agency that provides news, credit ratings and financial data products and services for the global insurance market, has given a pass mark to the African insurance market, though with reservations.

The agency’s Associate Director, Market Development & Communications, Dr. Edem Kuenyehia, made the observation while unveiling the A.M. Best Financial Review for last month.

He said the respective African insurance markets have recorded various levels of improvements in market penetration, in tandem with the various levels of economic development in the different regions of the continent.

“Insurance penetration in Africa is growing, but from a very low base. In certain countries, Africa’s insurance and reinsurance markets offer potential for growth, given the economic development in the region.

“Each country has different drivers for heightened insurance demand, ranging from economies dominated by the oil and gas and mining industries, to large populations,” Kuenyehia said.
According to the associate director, insurance market growth in recent years has also been characterised by an increase in the number of direct partnerships between businesses in Africa with others internationally.

With the recent development, he said African insurance organisations should continue benchmarking other international operators while demonstrating their financial strengths and sound underwriting skills.

“Consequently, there has been an increasing interest in international insurer financial strength ratings, with the need for insurers and reinsurers to demonstrate solid underwriting and overall sound financials as a key aspect of the sector’s development.

“Benchmarking a company’s financial strength against competitors in other international domiciles is increasingly an aspect of this continent’s insurance development, in the same way as it has become a feature of other global insurance markets,” he said.

Before now, the agency said reinsurance capacity has continued to grow across the world in spite of the low productivity by the insurance industry.

According to agency, the insurance industry returned to profitability last year, marking a complete reversal of the negative trend which the industry witnessed over a few years before then.

It said the new trend pushed up activities in the global reinsurance market notwithstanding the challenges that reinsurance companies are facing, which was worsened by the decline in investment income.

“A return to an underwriting profit in 2012 enabled the global reinsurance market to continue its growth trajectory despite significant challenges. Deterioration in investment yields seems to be the greatest immediate concern, as depressed interest rates have persisted longer than most market observers predicted. Near-term improvement on that front appears unlikely, unless companies choose to stretch for yield, taking greater risk on the asset side,” the agency stated.

Kuenyehia also noted that the declining investment yield has put more pressures on insurance companies to look for other avenues of making profit.

“The weakened yield environment has increased pressure on underwriters to find better margin business while staying within their stated underwriting risk tolerances. This is difficult, considering the current view that the reinsurance and broader property/casualty markets are over-capitalised.

“The industry as a whole has recognised that achieving a 15 per cent or even a low double-digit return on equity is challenging when the risk-free rate is in the low single digits. However, read the fine print: the risk free rate is not exactly risk-free either,” the A. M. Best associate director stated.

Caption: Economic Community of West African States logo

Suspect All Unusual Transactions, Expert Tells Accountants
Nnamdi Duru
The Special Control Unit against Money Laundering (SCUML) has pointed out that suspicion of unusual financial transactions is a major tool in the Anti Money Laundering and Combating of the Financing of Terrorism (AML/CFT).

The unit therefore, advised chartered accountants responsible for preparing financial reports to suspect any of such transaction and make necessary report to the relevant security agencies.

A top official of SCUML, Mr. Emmanuel Igbodekwe, gave the admonition at a workshop organised by the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) established by the Economic Community of West African States (ECOWAS) in Banjul, The Gambia recently.

The programme was to sensitise chartered accountant, as gate-keepers who have crucial roles to play in the regional efforts, against money laundering and terrorism financing in order to enhance their capacity in the implementation of anti money laundering and combating of the financing of terrorism.

According to him, accounting professionals should realise that there is a degree of satisfaction of suspicion, even if it does not amount to belief.

“Suspicion should be created in the mind of an alert member of staff by activities which are unusual conduct of a client. A suspicious transaction will often be one, which is inconsistent with a client’s known, legitimate business or personal activities or with the normal business for that type of client.

“Therefore the first thing about recognition is to know enough about the client and their businesses to be able to recognise transaction, or series of transaction that are unusual,” Igbodekwe said.

Meanwhile, the Governor of Central Bank of The Gambia, Hon. Amadou Colley, said the programme would go a long way in building capacities of accountants in combating money laundering, terrorism financing and other related economic and financial crimes.

“Money laundering has proven to be a menace to the world and the efforts required in the prevention, detection and prosecution are enormous. This is so mainly because of the sophisticated techniques used by criminals to launder money.

“Money laundering could have devastating effects on national economies. While this menace can occur in any country, it could have serious economic and social consequences particularly for developing countries. This is so because developing countries tend to be small and more susceptible to disruption from criminal influences,” Colley said.

The programme sought to create more awareness within the accountancy profession in Anglophone countries of West Africa and the need to build the capacity of accountants to enhance their AML/CFT competencies.

In keeping with relevant laws, members of the Institute of Chartered Accountants of Nigeria (ICAN) are registered with SCUML. The unit was established in 2005 as a special unit to fighting money laundering as spelt out in the Money Laundering (Prohibition) ML(P) Act 0f 2004 (Now 2011).