The business environment is becoming more challenging with each passing day. The global economy grew by 3% in 2019 as against an initial projection of 2.9% and economic and financing conditions continued to tighten while trade tensions remain elevated across major economies in 2019 due to concerns resulting from the negative spillover effect of the protracted trade dispute between the U.S. and China, the lingering Brexit uncertainties and geopolitical tensions in the Middle East. As a result of these factors, emerging markets and developing economies experienced significant financial market stress and lost momentum in their recovery.
Towards the end of the year 2019, the International Monetary Fund (“IMF”) released its economic outlook for year 2020 and it projected a global growth rate of 3.4% reflecting an expected improvement in economic performance in a number of emerging markets in Latin America and the Middle East, moderation of investment growth in major advanced economies and strong growth in some non-resource-intensive countries of Sub-Sahara Africa. However, it is now uncertain that the projected growth rate will be achieved in view of the expected impact of the COVID-19 pandemic on the global economy. The pandemic had forced governments of the world major economies to enforce a lockdown of their countries and this has resulted in a slump in international travel and local commute, crash in global commodity prices particularly crude oil and material disruption of global supply chains, in effect, crippling economic activities the world over. Fitch Rating expects the world GDP to contract by 3.9% in 2020 and projected recession, likely to be twice as severe as the 2009 recession. Policy missteps at this stage would further exacerbate an already worsening global economy and it is hoped that countries and governments would move towards stronger multilateral cooperation, shared economic objectives and national-level policies that will provide timely support and foster a sustained recovery to the benefit of all.
The initial stable outlook forecast for the global reinsurance sector for the year 2020 and beyond became short-lived by the emergence of the COVID-19 pandemic and, although we cannot yet foresee the exact effects of the pandemic at this time, it is certain that the probable short and long-term costs would be substantial.
In 2019, the recovery in Sub-Sahara Africa continued at a softer pace. According to IMF World Economic Outlook, Gross Domestic Product (GDP) grew by 3.3% in 2019 as against 3.2% in 2018, significantly slower than expected, partly due to weaknesses in the region’s major largest economies of Nigeria, Ethiopia and South Africa. The year 2020 is expected to be another year of modest growth and the IMF had projected a growth rate of 3.5% for 2020-2021; however, as at the end of March 2020, the WEO predicted a negative growth of 1.6% for the region because of the current world economic realities and expected impact of COVID-19 pandemic on the economies in the region.
It is anticipated that falling commodity prices, the disruptive impact of the lockdown, job losses, tight financial conditions in the advanced economies and debt overhang on African nations might cause prolonged recovery for the continent. In this difficult environment, it is of paramount importance for developing economies to build policy buffers, laying a strong foundation for future recovery by boosting human capital and promoting trade integration.
The highlights of the company’s financial performance during year 2019 are contained in the CEO statement 2019 Annual Report.
Though the operating environment in Sub-Sahara Africa remains challenging, the reinsurance market in Sub-Sahara Africa continues to offer growth potential. The continued presence of global reinsurance companies in the African market had enhanced competition and the growth of the sector. The renewal season in 2019 witnessed price increases following two consecutive years of significant catastrophe losses. Pricing continues to improve, and there had been improvements on the reinsurance treaty side which were largely driven by bigger improvements in pricing in the primary markets. However, these moderate increases in rates did not transform into reinsurers’ profitability as the sector continues to face other weak business conditions.
Also, the initial stable outlook forecast for the global reinsurance sector for the year 2020 and beyond became short-lived by the emergence of the COVID-19 pandemic and, although we cannot yet foresee the exact effects of the pandemic at this time, it is certain that the probable short and long-term costs would be substantial.
It is expected that the pandemic will exacerbate the tightening of the non-life market segment, especially the catastrophe risk, and the segment could find itself in demand, as re/insurers would be looking for ways to better protect their balance-sheets in 2020, in light of the expected impact to their capital and the potential for ongoing losses from the pandemic. However, we do not expect the pandemic to prove a hindrance to our business objectives, as we expect the Company to become stronger in this challenging environment. With our balance sheet, industry experience and unalloyed commitment, we will remain a reliable partner to our clients. We are confident of emerging stronger from the coronavirus crisis as we will be able to avail ourselves of the opportunities likely to arise.
The Nigerian insurance industry has experienced significant growth in the past few years, though still full of untapped opportunities. It had a favourable year in 2019 with growth of the Gross Premium Income (GPI) rising by over 12% to an estimated ₦471 billion. The major contributors to the growth were increased regulatory support through the implementation of micro-insurance and bancassurance insurance initiatives, favourable macroeconomic indices, the commencement of major projects across the country and increased awareness of the benefit of insurance. Despite the growth achieved in the previous year, enormous untapped opportunities abound as well as challenges, but the reinstatement of the January-December budget cycle is expected to boost business planning and investment and the effect of the new Finance Act and other economic reconstruction policies geared toward revitalizing the growth of economic activities will surely benefit the insurance industry in the year 2020.
The National Insurance Commission remains committed to building capacity and improving the resilience of the insurance sector as evidenced by its push for the recapitalization in the sector. It is expected that the recapitalization will create supply-side capacity for local content utilization, enable the industry to support big infrastructural projects, restructure existing market fundamentals and reposition the industry for the greater benefit of all stakeholders. We are optimistic that we will comply with the minimum capital requirement long before the deadline which has been split into two phases owing to the COVID-19 pandemic.
Our employees are our greatest asset for the achievement of the business objectives and goals. The Company ensures that the right talents are considered for appointment, diversity and inclusion in its people management agenda, promotes equal opportunity for all employees to acquire the right competencies that will enable them to deliver the best results and also ensures the security, health and safety of staff. Our employees are dedicated and always strive to make significant contributions towards stabilizing our growth and business. Their exemplary responses to the current challenging business environment resulting from the pandemic is a reaffirmation of their commitment towards making Continental Re the preferred company in the market.
We remain undaunted in our vision to make Continental Re the premier Pan-African reinsurer and we will continue to pursue this with strength and vigour. We remain committed to ensuring that our Company continues to improve on all its performance-measurement parameters. The destabilizing impact of current realities has reawakened our focus and we are confident of achieving our target performance because of all the measures and strategies that have been put in place. We expect the road to be bumpy, but we are confident that we are well-positioned to take advantage of opportunities created by the situation.
As a Company, our achievements thus far would not have been possible without the support, understanding and cooperation of all our partners. I thank the Board of Directors for their insights and guidance in ensuring that the Company is well run. I also thank the management and staff for their commitment and dedication.
Chief Ajibola Ogunshola