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The deteriorating risk environment in many African countries is weighing on (re)insurers, despite their efforts to mitigate the impact of macroeconomic challenges, according to a new special report from AM Best.

AM Best-rated (re)insurers operating in Africa typically hold robust capital buffers, underpinned by generally low underwriting leverage and relatively conservative investment portfolios by asset class. However, the declining creditworthiness of many African debt issuers has led to increased asset risk and will test the resilience of the continent’s (re)insurers’ balance sheets.

In its new Best’s Special Report, “Economic Challenges Exacerbate Risks Faced by (Re)Insurers in Africa,” AM Best notes (re)insurance companies operating in Africa and other emerging markets are typically exposed to heightened levels of economic, political and financial system risks. In recent years, these risks have been exacerbated by external shocks, such as the COVID-19 pandemic.

Soaring commodity prices, as a result of supply-chain disruptions and price shocks related to the Russia-Ukraine conflict, have resulted in increased inflation and financial instability across Africa, particularly for those markets reliant on the import of fuel and other commodities.

Softer demand conditions may hamper growth and reduce government revenue, adding to the list of existing challenges faced by many African economies.