NamibRe weathers insurance’s economic storm
THE Namibia National Reinsurance Corporation (NamibRe) is a state-owned enterprise established under the Namibia National Reinsurance Act, 1998 (Act 22 of 1998), to perform the following:
carry on reinsurance business and to conduct all affairs relating thereto in accordance with sound insurance practices and methods;
promote the development of, and the participation of the people of Namibia in, the insurance and reinsurance industry in Namibia;
provide reinsurance cover of international standards to insurance markets, whether within or outside Namibia; and
create, develop and sustain local retention capacity in insurance and reinsurance business and to minimize the placement of insurance and reinsurance business outside Namibia.
In pursuit of the above-mentioned, the corporation started to underwrite reinsurance risks first in July 2001 following its formation.
From N$5.5 million at end of March 2001, the gross premium income (gross turnover) grew to N$97 million at end of March 2010, a sure sign that the corporation managed to ward off much pressure from the economic meltdown whose effects severely paralysed the insurance world.
Such a growth was systematic over years, mainly generated from underwriting reinsurance risks in the Namibian market.
Reinsurance in itself is a secondary function in the insurance chain.
Whilst insurance companies provide insurance covers to individuals and businesses to protect their assets and themselves against anticipated unforeseen perils or dangers; the function of reinsurance involves providing the same protection to insurance companies. Reinsurance is therefore an insurance for insurance companies.
Three basic reasons exist why insurance companies need to reinsure further. In essence, reinsurance plays vital roles in the insurance industry, which include:
• Providing capacity to insurance companies: This is necessary to insurance companies when they are unable, due to the size and nature of risks, to keep the whole of the insured value for their own account. This scenario occurs when large risks with high sums insured are underwritten. With reinsurance, the insurer could write the risk and reinsure a portion or whole and only keep what its financial position could support.
• Creating stability to insurance companies: fluctuations and swings in the results are caused by very large and sudden catastrophic losses or the unexpected accumulations of a number of losses over the period of time. Acquiring reinsurance minimizes fluctuations as it limits exposures to insurers of individual risks to losses.
• Strengthening finances of insurance companies: the reinsurance’s financial ability is measured by the solvency margin, a yardstick used by regulatory bodies to control the exposure of insurance companies. Therefore, insurance companies purchase reinsurance to control their solvency margin, which is calculated as the percentage of capital and reserves to its retained premium income.
Another milestone in the growth phase is to attract reinsurance requirements in other territories. To this end, NamibRe embarked on marketing strategy in Zambia, Angola, Malawi, Kenya and Tanzania. As at end of March 2010, 11.2 per cent (or N$10.9 million) of our gross premium income was sourced from those markets.
The crucial aspect justifying the existence of reinsurance companies is their ability to pay claims when due. To this end, NamibRe is independently assessed by Global Credit Rating (GCR), and was affirmed a Claims Paying Ability rating of AA- (double A minus) National Rating; A- (A minus) Regional Rating and BB (double B) for International Rating. These ratings reaffirm NamibRe as a reasonably quality reinsurer. This rating exercise is the 5th, since 2006, and compared well with some regional reinsurers.
The business of NamibRe involves providing reinsurance in classes of short-term insurance as shown in graph 3.
Due to high exposures and complex underwriting involved, NamibRe does not underwrite aviation business yet.
There is no business without challenges. Whilst NamibRe posts good profits over years, and maintain reasonable solvency margins, the corporation remain smaller in financial terms compared to the sizes of risks that the market need to reinsure. As a result, bigger proportions of mega risks should still be reinsured abroad. There is a need for further financial growth to enable the corporation to absorb risks offered to it for reinsurance.
The other challenge faced is that of technical expertise. Reinsurance being a relatively new discipline in the market, and a specialized discipline, there are no skills available, and NamibRe takes the lead in building this expertise, which is not only needed in reinsurance companies, but also crucial in clients, namely the insurance companies, so that they are able to comprehend how much to reinsure.