December 10th, 2008

Namibia: Catastrophe Reinsurance Market 2008

Posted at 1:00 AM ET

2008 Reinsurance Market Position

The net retention of Namibian Insurance companies remains low. Consequently, large amounts of reinsurance are placed abroad, either with parent companies or professional reinsurers. Reinsurance rates have remained low over the past few years, as there have been few major events. The use of proportional treaties is still widespread, though they have event limits restricting the unlimited lateral cover offered in the past.

Limits required for catastrophe protection have always been a problem, due to the fact that none of the global catastrophe modeling companies has developed a Namibian model. Most companies simply take a percentage of their exposure in the capital city as guide for a suitable catastrophe limit. To date, no company has ever run out of cover.

Reinsurers not domiciled in Namibia do not have to be registered in order to participate in the reinsurance of Namibian risks. However, companies cannot place reinsurance beyond Namibia’s borders without express permission from the country’s Registrar of Insurance.

A revised version of the National Reinsurance Bill has been negotiated. Subsidiaries of South African countries may continue to use the treaties set up by their head offices, but they have to cede portions of their net retentions to NamibRe. This version of the bill has not been accepted by all relevant parties. Originally passed in 1998, the National Reinsurance Bill nationalized part of the reinsurance industry. NamibRe was given the right of first refusal on all facultative reinsurance, as well as the opportunity to cover 20 percent of all reinsurance treaties. This agreement expired in 2006.

Catastrophe Exposure

Namibia has experienced few losses from major natural hazards. There have been no significant earthquakes in the country, even though Windhoek, Namibia’s capital, lies on a small fault. An earthquake in the Atlantic Ocean could cause damage by tsunami, but historically, no large earthquakes have occurred anywhere near the Namibian coast. Other than the occasional whirlwind, windstorms are rare. Flash floods occur in the rainy season, but the resulting losses have been small.

In the first four months of 2006, Namibia experienced unusually high rainfall. This led to a record number of floods, specifically in Windhoek in January, Mariental in February and along the coast in April. However, damage was minimal in relation to the flooding that has been experienced in other countries.

At the start of 2008, Angola, Namibia’s northern neighbour, experienced a lot of rain. This water flowed into Namibia and caused some rivers to burst their banks. Once again, though, insured losses were minimal.

Hail is rare in Namibia. Along the west coast (Walvis Bay and Swakopmund), none has been recorded in the last 100 years. Hail does fall between October and May in Windhoek, but no major damage to property has been recorded.

Insurance Availability

The short-term (non-life) written premium for 2007 was approximately NMD1.1 billion (USD147 million). Namibia had 10 active short-term insurers in the market in 2007 and one reinsurer, NamibRe. Though the Insurance Bill of 1998 has forced the industry to localize, many insurers still function as subsidiaries of South African companies.

Prosperity Insurance, a new local insurance company, opened its doors and began to write business direct to the public at the start of 2007. A few months later, Prosperity changed its strategy to include distribution by broker networks. Outsurance, the South African insurance company that bought Namibia’s Swabou Insurance, is making considerable progress selling directly. Inscon, one of the few local companies without links to South Africa, is still under curatorship, though its policies were taken over by Santam, a local insurer, in the middle of 2007.

Namibia has no compulsory classes of insurance. A government fund runs motor third-party bodily injury liability insurance, and a levy on gasoline sales pays for it. There are no obligatory tariffs for any class of business, resulting in fierce competition. Most insurers battle to write a profitable motor account. The market is firmly driven by brokers; apart from agents, there are few other forms of distribution of insurance products.

Cover for political riot is provided by the Namibian Special Risks Insurance Association (NASRIA) which operates as a non-profit organization, similar to the South African Special Risks Insurance Association.

Under current legislation, insurance placed outside Namibian borders is not permitted unless cover is unavailable in the local market. In practice, there are many such risks, principally in the areas of marine, aviation and professional indemnity insurances, due to the lack of local capacity or technical expertise in these areas. These risks must be sent to the Director of the Namibian Financial Institutions Supervisory Authority (NAMFISA) for approval before foreign placements may be considered.

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