By Steve Mbogo
Eastern Africa’s capacity to reinsure political and terrorism risks has increased by more than 220 percent following introduction of new reinsurance product, a move that will give comfort to regional business that are highly exposed to such risks.
The new product has been introduced into the market by Afro Asian Insurance Services, the regional brokerage representative of Lloyd's of London.
The London-based reinsurance company set up regional offices in Nairobi last year and was the main reinsurer for Nakumatt Stores’s Westgate Shopping Mall branch which was destroyed during an Al Shabaab attack last year.
The war in South Sudan and terrorism threat by the Al Shabaab in Somalia, Kenya and Uganda, are two key political and terrorism issues facing regional businesses as they seek to increase their region footprint.
The two risks have also potentially restricted flow of foreign direct invests by for profit and non-profit organizations.
Before, the maximum insurance regional underwriters could undertake for a single business was Ksh400 million (US$4.7 million) but with the new product, the risk can be underwritten for up to $15.2 million.
"This additional capacity now allows insurance companies to take bigger risks relating to political and terrorism risks and offers companies and organizations more leeway to increase their investments without the worry of such risks," said Christian Ramamonjiarisoa, the Group Director for Afro-Asian Insurance in Eastern and Central Africa.
"If the capacity exceeds this amount, we can still transfer the reinsurance to London for up to $40 million," he added.
The new product will come as a relief to regional insurance companies, who have been facing capacity challenges to insure large risks. It also means that local insurers do not have to seek for reinsurance services for such risks abroad, a move that has contributed to capital flight from Africa.
According to the 2014 Terrorism and Political Violence Map, 46 percent of the Eastern Africa region is rated as high or severe in both categories. The report is prepared annually by Aon Risk Solutions.
In East Africa, terrorism stands out as the predominant risk, reinforced by the internationally high profile attack on the Westgate Shopping Mall in Nairobi in September 2013, according to the report.
Kenya risk rating is 4 (high), similar to Uganda, Ethiopia and Burundi. South Sudan is rated 5 (severe) similar to Democratic Republic of Congo and Somalia. Rwanda and Tanzania are rated 2 (low).
Demand for political and terrorism risk increased tremendously following the Westgate attack, according to A.M. Best, the international agency that provides credit ratings for global insurance market.
The agency predicted an increase in the premium rates across Africa following the attacks.
In Kenya, the demand for the cover has also been driven by individual insurance buyers as the Westgate attack and the 2008 post election violence made consumers realize they could not be compensated for their damaged vehicles for instance if the vehicle’s comprehensive insurance cover did not include terrorism and political risk element.
The breakout of war in South Sudan has also reinforced the need for political and terrorism risks for businesses.
Source Newbusinessethiopia
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