Angola’s reinsurance business and the oil and gas sectorSeptember 22, 2022
Alexandre Carreira, executive director of Nossa Seguros, talks to The Energy Year about the role of local companies and the international reinsurance market in Angola’s oil and gas sector and the main challenges and opportunities related to the insurance business in the country. Nossa Seguros operates in the life, non-life and pension fund segments for companies and individuals.
What role do local companies and the international reinsurance market play in the domestic oil and gas sector?
The Angolan upstream undertakings are covered by the coinsurance regime for oil and gas. The regime has had the same leader since 2016 and presently the regulator allows 11 other insurance companies, including Nossa Seguros, to participate in the scheme. The leader is allocated 44% of the premiums and the other 11 co-insurers are allocated 4% each, totalling 44%. The remaining 12% is allocated by the leader to all the participants according to the proportion of their actual retention of oil and gas risks in their balance sheets.
Despite this rule for the allocation of premiums, the local retention of capital insured by the co-insurers is determined by their own assessment of their capacity to retain risks, which has resulted in a residual local retention of the capital insured. Therefore, a substantial part of the capital insured is being placed in the international insurance market through reinsurance.
Since 2016, companies operating in the oil and gas sector have been allowed to freely acquire insurance in the Angolan market for their staff and assets not directly related to the oil and gas operations. Hence, local insurers have been busy competing for this business, complementing their retention capacity, if necessary, with reinsurance obtained internationally. In fact, the Angolan insurance market is completely integrated into the global insurance market through reinsurance, which has allowed clients to access the most advanced insurance solutions available in the world.
How does the company position itself to compete in the oil and gas sector?
Nossa Seguros positions itself as a local robust and competent insurer with the agility to deliver adequate solutions at correct prices. Through our efforts to provide our clients with a superior experience, a relationship of proximity, coupled with our focus on the promotion of a digital sphere, we are looking forward to the possibility of competing for the leadership of the coinsurance regime for the oil and gas companies once the regulation allows it.
As providers of insurance solutions for all the phases of the oil and gas value chain with experience obtained either directly or through the participation in the oil and gas mandatory coinsurance regime, we are very keen to market our value proposition to companies exposed to the challenges of the energy sector. In the context of the Angolan market, for example, we are prepared to capitalise on our experience to deliver value to companies involved in the construction and operation of refineries as well as to those in the process of transitioning to the exploration of renewable energy sources.
Other than the energy and traditional types of insurance, we have the structure to provide, for instance, cyber insurance, terrorism and political violence (PVT) insurance, kidnap and ransom insurance (K&R), and employee benefit (EB) insurance solutions.
How have the latest regulations affected the supply sources of foreign currency?
The recent changes in foreign currency regulations have created a more balanced market, which is now reflecting more realistically the forces of supply and demand. The forex market is now more transparent and efficient.
Companies operating in the oil and gas and diamond sectors as well as airlines and insurance companies are now allowed to do transactions through the Bloomberg trading platform FXGO, joining the treasury, Banco Nacional de Angola and commercial banks in the trading. This effectively diversifies the supply sources of forex to the market, positively rebalancing the market power of suppliers.
Our suppliers and partners, including reinsurers, are effectively less exposed to the risk of unavailability of foreign exchange in our market with the forex rate adjusting to the market condition. Our capacity to honour our commitments in foreign currency is strengthened, boosting our negotiation leverage and improving our foreign business counterpart’s confidence in our relationship.
Local exporting companies now should receive their revenues in banks domiciled in Angola, thus improving the sustainability of forex supplies to the market. This, in combination with a price determination mechanism based on market forces, will most probably improve FDI inflows.
What are the key actions and trends that define the performance of the Angolan economy?
A USD 100-plus oil price and sound fiscal management have contributed to the reduction of the central government debt to a more sustainable level, creating room for the country to continue to invest in important economic and social infrastructure, which, in combination with the easing of Covid-19 restrictions, has generated supportive conditions for economic growth.
Following five years of recession, the economy grew by 0.7% in 2021 with a good performance of the non-oil sector. In Q1 2022, GDP grew by 2.6%, the third consecutive quarter of increasing growth. Since the end of 2021, business managers have become optimistic about the short-term prospects for the Angolan economy (as measured by the Economic Climate Indicator published by INE [Instituto Nacional de Estatistica], ending a long period of pessimism that started in Q3 2015. The economy entered a new and more dynamic phase, but it needs to grow at faster rates to keep up with the population growth rate.
The continuation of reforms to improve the business climate and competition, a strong commitment to fight inflation, as well as the implementation of sound models to develop and finance a diversified economy and strengthen the education sector will enable faster rates of growth and the reduction of risks to the economy.
What measures did the company take to navigate the impact of the pandemic?
Covid-19 had a huge impact on many clients’ ability to pay their insurance premiums on time. Our ability to support clients through the difficult pandemic times and agree on payment terms adapted to clients’ cashflow profiles helped them weather their financial difficulties and allowed us to preserve some important business relationships and expand business opportunities. This was only possible due to our robust balance sheet and permanent focus on financial soundness and conservative management of risks.
The pandemic also confirmed the importance and the potential of remote channels. Throughout the pandemic, Nossa Seguros continued to serve its clients efficiently and without interruptions, mainly through remote interactions with clients. Going forward, we will continue to invest in developing the infrastructure needed to deliver its solutions remotely, taking into consideration concerns related to cyber security.
Despite the low levels of insurance culture, the pandemic has made people more mindful of their vulnerabilities and the importance of having adequate insurance solutions to weather difficult times. This background provides the insurance sector with opportunities to deliver, for example, health and life insurance and business continuity solutions. Nossa is, therefore, working on the upgrade, development, and marketing of solutions to meet those needs.
We understand that our way ahead should be founded on strategic partnerships, knowledge and human capital, technological support and financial strength and profitability. This has been our focus and we believe that this position strengthens our resilience and gives us the capacity and agility to implement and deliver high-quality insurance solutions and a superior customer experience.
What are the main challenges and opportunities related to the Angolan insurance sector in general?
Regarding opportunities, it is worth noting that the penetration rate of insurance in Angola is less than 1% of GDP, which is considered low even by African standards. The penetration of the life insurance business, situated close to 0% of GDP, is much lower than the penetration of the non-life business. This market context provides us with immense opportunities to grow by meeting market needs.
Nossa Seguros strives to be ahead of its competitors in terms of governance, risk management and internal controls. We are also very keen and adamant to pursue financial discipline and transparency. For example, we are rated by Fitch and our external audit reports have been clean for many years. We believe that this position should translate into commercial gains in a context of a more demanding regulatory framework for the insurance sector. In fact, a new insurance law, which incorporates the best international practices in the management of insurance companies, has just been published and came into effect in July 2022.
Sound economic policies coupled with an improving business climate are expected to improve opportunities for the well-run insurance companies in the years to come. I would point out, however, that among the most relevant challenges are, namely: a weak insurance culture, an excessive fragmentation of the market, elements of non-competitive structures, difficulties in locally sourcing important services to support our operations, limited availability of financial instruments (including edging solutions) and high levels of inflation.
What are the company’s main goals and aspirations for 2022?
Nossa Seguros aspires to grow by more than 30% in 2022 while maintaining its strong record of high profitability. We grew by an average annual rate of 45% in the last four years and our annual returns on equity were above 30% during the same period.
The main drivers of growth and profitability in 2022 are not expected to be materially different from 2021, with health, other damage to property, petrochemicals, auto and workmen’s compensation being the lines of insurance business with greater contribution to sales. However, we are also working to update and broaden our range of products and services and to provide a better customer experience with new commercial and marketing approaches as well as through improved technological solutions.