Reinsurance & Its Impact on Pricing

Why Reinsurance Affects Your Premium

Reinsurance is insurance for insurance companies. When a Ghanaian insurer accepts a large risk, say a GHS 50 million industrial complex, it typically can't afford to carry that entire risk on its own balance sheet. It cedes a portion to a reinsurer.

This matters for pricing because the cost of reinsurance is a direct component of the premium. If reinsurance becomes more expensive (as it has globally in recent years due to climate change and catastrophe losses), premiums must increase too.

How reinsurance works in Ghana:

Ghana has a mandatory cession to Africa Re. A percentage of every policy must be ceded to the African Reinsurer. Beyond that, Ghanaian insurers purchase treaty reinsurance (automatic cover for their entire portfolio) and facultative reinsurance (specific cover for individual large risks) from global reinsurers like Munich Re, Swiss Re, and Hannover Re.

The reinsurance structure determines the insurer's net retention, meaning the maximum amount it can lose from a single claim. A company with GHS 5 million retention and a GHS 50 million risk cedes GHS 45 million to reinsurers. The premium is split accordingly.

Proportional vs Non-Proportional Reinsurance

Proportional (quota share and surplus):
The insurer and reinsurer share premiums and claims in a fixed ratio. If the treaty is 60/40, the reinsurer takes 60% of the premium and pays 60% of every claim. Simple, predictable, but the insurer gives away a large portion of premium.

Non-proportional (excess of loss):
The reinsurer only pays when a claim exceeds a threshold (the retention). Example: 'GHS 5 million excess of GHS 2 million' means the insurer pays the first GHS 2 million of any claim, and the reinsurer pays the next GHS 5 million.

Non-proportional reinsurance is more efficient: the insurer keeps more premium on small claims and only involves the reinsurer for large losses. But it requires more sophisticated actuarial analysis to price correctly.

For pricing professionals in Ghana: When setting premiums, you must factor in the reinsurance cost. If your treaty costs 30% of gross premium for a particular class, your gross premium must be high enough to cover the net claims you retain PLUS the 30% reinsurance cost PLUS your expenses and profit.

The African Reinsurance Landscape

Ghana's reinsurance market is shaped by several key players:

→Africa Re: Pan-African reinsurer headquartered in Lagos. Mandatory cession from Ghana. Provides significant capacity for the continent.
→Ghana Re: The national reinsurer, providing additional domestic capacity.
→Continental Re, WAICA Re: Regional players active in the West African market.
→Global reinsurers: Munich Re, Swiss Re, Hannover Re, SCOR: accessed through international brokers like Aon, Guy Carpenter, and Gallagher Re.

The challenge for Ghana is that global reinsurers are increasingly cautious about African risks due to limited data, currency volatility (the cedi's depreciation affects claims costs for imported parts and materials), and concerns about regulatory enforcement. This means reinsurance costs in Ghana are relatively high compared to more mature markets, which directly impacts premium levels.