What does it take to succeed in emerging markets with low insurance penetration?
Africa Specialty Risks CEO Mikir Shah is on a mission to bring the best of specialty insurance to emerging markets across the globe, and help facilitate economic growth in these regions.
The business has just inked a new investment deal with Vitruvian and secured key ratings upgrades.
He tells Behind the Headlines of the importance of detailed knowledge of local markets, and how constantly searching out new data sources is key to success.
Plus, Insurance Insider’s Abbie Day discusses some worrying signs in prior year underwriting performance in cyber.
This transcript was generated using AI and may contain errors. Please check against the audio before quoting.
Sam Casey: Hello and welcome to Behind the Headlines, brought to you by Insurance Insider. I’m your host, Sam Casey, and do remember to subscribe to the show. Our interview this week looks at what it takes to build a successful insurance franchise in emerging markets. My guest is the CEO of Africa Specialty Risks, Mikir Shah, who is passionate about the role insurance can play in unlocking economic growth across the globe. Following a recent deal with Vitruvian, the London-headquartered business is looking to expand into more emerging markets beyond Africa. Mikir explained to me how the company operates across jurisdictions that have traditionally proved challenging for many established insurers.
Mikir Shah: One of the key aspects of developing markets, and Africa is an example of that, is that a lack of data has scared off a number of global reinsurers. However, the data does often exist. You have to find it. And it does exist in a better format now anyway. Since we launched in 2021, we’ve collected all this data. We’re very big on data collection. In fact, even though we’ve only been going five years, we have close to six terabytes of data.
Sam Casey: Before that, I’m joined by Insurance Insider’s Abbie Day for this week’s news discussion, focusing on the cyber market. Abbie, thank you for coming on the show.
Abbie Day: Thank you for having me, Sam.
Sam Casey: You’ve been writing about the cyber market this week, and in particular some of your sources have been voicing concern about prior-year performance for the class. Can you explain what’s prompted people to talk about this?
Abbie Day: Yes, so the cyber market has been talking quite a lot about the 2023 year of account, which looks like it’s going to perform pretty badly. It could be the canary in the coal mine for heightened loss experience going forward. Sources have told us the market is concerned that, on the current trajectory, the loss ratio for the 2023 year of account could go over the 50% mark, which obviously raises questions about rate adequacy. These loss ratios are being driven not just by ransomware but by data breaches and wrongful collection liability, all contributing at once.
Sam Casey: A loss ratio of more than 50% might not be too problematic in certain classes, but my understanding is there are different things to bear in mind in cyber. Can you explain how cyber writers look at loss ratios when they’re trying to manage performance?
Abbie Day: Sure. Cyber is slightly unique in that it straddles first-party exposures like ransomware, third-party exposures like data breaches and catastrophe exposures. So the book needs to run at a lower attritional loss ratio to account for those sharp increases in severity. Like you said, in a lot of lines a loss ratio over 50% isn’t that big a deal. But brokers and underwriters have told us that for a cyber book to be profitable, carriers should be aiming for a loss ratio of around 30%-40%. One even said that for a really top-performing cyber book, you’d want to get into the 20% range. So when you go above 50%, or even into the 60s, they say there’s just not much margin left.
Sam Casey: And that’s the 2023 year. Fast forward to today, how are market conditions shaping up in cyber? I know we’ve had a pretty long period of softening.
Abbie Day: Yes, and it’s still softening as far as we can see. In the report we put out the other day, we said cyber pricing is now 22% below its mid-2022 peak. People do say it feels like the softening is coming to an end, even if we’re not quite there yet, which is obviously a good thing. But one broker warned that carriers are still losing business when they try to hold the line. So we’re definitely still in a softer environment.
Sam Casey: And this emerging concern about prior-year performance, does it feel like enough to bring the softening to an end? Or is it still outweighed by the classic supply and demand imbalance that’s been driving the soft market so far?
Abbie Day: It’s really hard to tell this early on, because the 2023 year of account isn’t mature yet and it could take quite a few years to land on a final figure. It doesn’t feel quite as dramatic as 2019, when ransomware spiked and helped turn the market hard. But I think the 2023 year of account gives the market something to keep a close eye on, and more reason to watch the 2024 and 2025 years of account as a marker of where the market is heading.
Sam Casey: Abbie, thank you very much for coming and speaking to me.
Abbie Day: Thank you for having me.
Sam Casey: Africa Specialty Risks launched in 2021 with the aim of bringing the best of the London specialty market to the African continent to support economic growth. The business recently signed a new investment deal with Vitruvian and secured some credit rating upgrades, so there’s plenty to discuss. I’m delighted to be joined by CEO Mikir Shah. Mikir, thank you for coming on the show today.
Mikir Shah: Thank you for having me, Sam.
Sam Casey: Why don’t we start broadly? Tell us a bit about Africa Specialty Risks. Why was it launched, how long has it been going and what’s your core business? I know the clue is partly in the name.
Mikir Shah: The name highlights exactly where we come from and where we started. It’s really a developed market business providing insurance to developing markets, and that’s the difference. We operate across Africa. The reason we started the business is that I come from a business family in East Africa, and there has been a shortage of specialty insurance for large projects for as long as I can remember. Whenever you wanted to start a new business, like a sugar plant, the cover wasn’t readily available. It would take weeks to come back, because the structure of the market in Africa is very different from developed markets. Local insurers tend to be smaller with smaller balance sheets. They don’t always have the full underwriting skill set you need in corporate specialty, because their focus is more often SME and retail. For large complex risks, they’d normally just go to their lead reinsurer for terms, conditions and pricing. So inevitably it went to the large reinsurers. Now, underwriters at those large reinsurers in Europe wouldn’t really have been able to travel to Africa, or had any inclination to. So they’d underwrite based on what they thought they knew and add a premium for Africa. It’s as simple as that. Sometimes they’d say, “Oh, it’s Africa. I can’t provide the full cover. I’ll just provide this bit and that bit.” That has a real knock-on effect for business, because it means you have to take more risk onto your own balance sheet as a business or as a family running a business. It also means you can’t grow as fast. That holds back expansion and development, and it slows down lifting people out of poverty. Let’s be clear, that’s a big issue in Africa. It’s something we’ve been focused on and it’s really the driving force behind the creation of ASR.
Sam Casey: People always talk about insurance as an enabler, but it sounds like the way the insurance market operates there is almost a blocker.
Mikir Shah: Yes, exactly. It is a bit of a blocker. The issue has always been that local insurers and reinsurers don’t have the facultative, risk-by-risk assessment skill set for large complex risks. They don’t have the balance sheets either. As countries develop, and as the continent develops, you’re going to get bigger investments coming in that need to be de-risked. They need the right cover and they need the right rating as well. That’s also been an issue.
Sam Casey: Tell me a bit more about yourself. What has your career in the insurance market looked like before founding this business?
Mikir Shah: I was born in Kenya, studied in the UK, trained as an actuary and went into investment banking. Then I got pulled back in by Old Mutual when they were looking to expand across Africa. At that point it was obvious this corporate specialty gap needed filling. I started the first version of this with XL. AXA then acquired XL, so I came out and started again, this time with the backing of Helios Investment Partners, which is the largest PE fund focused on Africa. Management owns shares and has invested, as did Helios at the time.
Sam Casey: Tell me a bit more about the structure of the business. I believe you have a presence in Bermuda and also a syndicate at Lloyd’s.
Mikir Shah: Yes, we’re really a co-insurance business. We have our own balance sheet and our own reinsurer in Bermuda, which was recently rated A- by Fitch and A3 by Moody’s. That was a big step forward. It makes us the only private reinsurer focused on Africa with an A rating, which is a big milestone for us and for Africa, and for other developing markets too. We also have our own Lloyd’s syndicate, which we launched in April 2024. It’s the first Africa-focused and developing market syndicate at Lloyd’s. But it is a co-insurance model. On the company market side, we have capacity from large international reinsurers, including binder capacity from the likes of Sava Re and Arch Re. At Lloyd’s, we have a consortium with Brit and Munich Re. So we get to deploy everyone’s capacity. On the company market side, we keep 25% back to our own reinsurer in Bermuda. On the Lloyd’s syndicate side, 25% of the FAL is ours as well, with third-party FAL providing the other 75%. We’re really trying to bring more people into the continent, and now into other developing markets as well, to make them comfortable with these markets. We want to show that you can write business there, make a difference, do it profitably and help development at the same time.
Sam Casey: Is the reason these companies want to deploy their balance sheets through you the local underwriting expertise? You talked about companies not having boots on the ground in Africa. Is that different to the way you operate?
Mikir Shah: Absolutely. When we started, we had an office in London. Our first policy was written in February 2021, on 16 February actually. We then opened in Mauritius, which is now a big hub for us with more than 50 people in the office today. We also have offices in Dubai, Casablanca and Johannesburg, staff in Kenya and India, an office in Bermuda and staff in Mexico too. So we now have quite a large number of offices, and we’ll keep expanding as we grow the business and our presence in other developing markets. We have a strong presence in these offices. Mauritius, for example, is a full-service office. We have actuaries, we have accountants, we have credit control, we have underwriters. Everything you’d want is there. And in South Africa, we’re the only syndicate with an office there deploying Lloyd’s capacity. That makes us unique. It’s a differentiator that helps everyone.
Sam Casey: And I presume that means you can go after the big-ticket specialty risks you’re aiming for, which need that risk assessment and analysis and time with the clients.
Mikir Shah: Absolutely. Having that local presence makes a difference because you’re part of the local ecosystem. In most of these markets, risks have to be shown to the local market first before they can be taken abroad. Being local means you understand what’s happening on the ground and the nature of these risks. You understand why they’re different and how to assess them, price them and put the right terms and conditions around them.
Sam Casey: So it sounds like it’s useful having that cultural knowledge of how the market operates, much like here in London, where Lloyd’s has its own unique way of doing business.
Mikir Shah: Absolutely, and having that local presence is fantastic. Because our skill set in corporate specialty is unique, with a real focus on facultative underwriting, we also run training sessions for the local market. Our mission is to enable development, but it’s also to help develop the local insurance ecosystems across these markets.
Sam Casey: Is it the full spectrum of specialty products you’re offering?
Mikir Shah: Yes, as you’d expect. Our focus on specialty products is shaped around developing markets. Our largest line of business is political risk and trade credit, because anyone investing money in these markets needs political risk or contract frustration cover to begin with. We like to follow that investment. We’ll then provide construction, political violence, terrorism and liability cover throughout the whole life of that investment, including the property or energy cover that follows. We also have a wraparound parametric product, which is fantastic. The thing to bear in mind about Africa is that it’s a vast continent. You’ll have seen that the UN recently changed the map to highlight the scale of Africa. We’ve been talking about this ever since we launched. Because of the size of the continent, it can take a couple of days for a loss adjuster to get to a claim. That’s not ideal, because you want a business back up and running as quickly as possible. So it has its own challenges, but understanding that lets you price and assess the risk in a more detailed way.
Sam Casey: Another challenge I was thinking about: if you think about someone underwriting a Miami hurricane risk, there’s so much data analysis, prior-year figures for people to pore over, valuations and established weather data. I imagine in many parts of Africa that just doesn’t exist to the same level of sophistication, especially where things are being built in places that haven’t seen major development before.
Mikir Shah: Absolutely. That’s one of the key aspects of developing markets, and Africa is an example of that, where a lack of data has scared off a number of global reinsurers. However, the data does often exist. We have to find it. And it does exist in a better format now anyway. Since we launched in 2021, we’ve collected all this data. We’re very big on data collection. In fact, even though we’ve only been going five years, we have close to six terabytes of data. So our data pool, or data moat, is vast. We use it in all our pricing and in our terms and conditions. It’s used every day in everything we look at, including our exposure management.
Sam Casey: And while Africa is the focus and the hub of the business, I understand the strategy now is to expand into developing markets more broadly across the world.
Mikir Shah: Absolutely. We launched in Africa and we’ve done well there. We’re already the second-largest reinsurer in Africa. What we’ve found is that other developing markets have similar structures. If you look at reinsurers in other developing markets, local reinsurers often just provide treaty capacity to local insurers, while large facultative risks get sent abroad to the big global reinsurers. So we’re doing the same thing there. We’re partnering with local insurers and local reinsurers just like we do in Africa, and providing our facultative skill set where it’s needed. For example, in India there’s a lot of property capacity. Fine, they don’t need our help there. But for things like trade credit or contract frustration there isn’t much capacity or skill set around. So we can provide that. We’re filling the gap, which is exactly what we’ve been doing in Africa. The whole philosophy is to help these markets. It also means we’re less exposed to the day-to-day competition issues we’re seeing in the market today.
Sam Casey: I was going to ask about that. If I look back to Monte Carlo a few weeks ago, the market was all talking about high capacity and softening. Do you see similar dynamics? Or because a lot of the risk you’re writing is potentially new, is there less of that competition? Has it followed its own cycle, slightly out of step with the wider Western market?
Mikir Shah: It is slightly different in Africa. For the large complex risks that would automatically make their way to London, yes, you’re seeing the same competition you’d see in the US or anywhere else. We’re seeing that as well. But risks written locally sit in a more local environment, with their own ups and downs and their own way of working. Remember, our structure is more local, so that’s really what we’re focusing on. You do have those pressures in local markets, but you also need to understand how to work in them. Getting to the risk isn’t easy in the first place. Building and maintaining those relationships is very different in Africa. It really is driven by relationships.
Sam Casey: At a time when the wider market is fighting over a shrinking pool of premium, it must be quite a nice place to be when you’re opening up new opportunities.
Mikir Shah: In Africa, we’ve always had a shortage of capital. That’s why ASR set out to fill that gap. We want to plug Africa and other developing markets into the global financial system so we can enable more development. The need for investment across the continent is vast. If people have capacity, please come and talk to us. We’ll help you deploy it in developing markets globally and enable development at the same time. It’s a really positive thing to do. We know there’s a lot of capacity and a lot of capital. Reinsurers have been very profitable over the last few years and built up capital, and there’s new capital coming into the market too. That capital is often chasing the same types of risk, with the inevitable impact on rates.
Sam Casey: How crucial has the Lloyd’s syndicate been to the growth of the business?
Mikir Shah: It’s a core part of our business. We launched it in 2024, and we’re the only developing market syndicate at Lloyd’s with our own consortium. It works well for us. It comes with its own licensing, which really helps. That’s how we were able to set up the office in South Africa, for example, and why we have underwriters in Morocco. It has the rating too, a double-A rating, and our Bermuda reinsurer has just been rated A. All of that helps. It also has the Lloyd’s infrastructure around it for claims payments, processing and everything else. So it’s a core part of our reinsurance platform. Lloyd’s is one side of it, alongside our company market business. We have binders from company market reinsurers and consortia from Lloyd’s syndicates, and we like to deploy them all together.
Sam Casey: You mentioned at the start that when you launched you had backing from Helios. More recently you’ve done a new deal with Vitruvian. Congratulations. You must be very pleased.
Mikir Shah: Thank you very much.
Sam Casey: Can you tell us a bit about that and what it means for the next stage of the business?
Mikir Shah: Helios was fantastic for us when we launched the business. It was an Africa and Middle East-focused business, and we’ve done very well there. That was the first phase. We’re now looking to the next phase, which is taking our business model to developing markets globally: the CIS markets, the Indian subcontinent, developing Southeast Asia and LatAm. Vitruvian is a global fund with a global infrastructure, and we’re looking forward to working with them as we deliver our Vision 2030, which is phase two of the business. Vitruvian is effectively replacing the Helios investment, and there’s extra capital coming into our reinsurer as well. We’re looking forward to working with them on the next part of our journey.
Sam Casey: What sort of scale have you reached so far?
Mikir Shah: I remember in the first year it was $30mn. Last year we finished at $360mn of premium.
Sam Casey: I’m not even going to attempt the maths on the percentage growth, but that’s a significant expansion.
Mikir Shah: And over the same period, we started with eight people and today we’re close to 200. We’ve grown headcount, but the top line has obviously grown substantially. This year we should be in the late $400mns.
Sam Casey: You talked about your Vision 2030 plan. What are you most excited about as the business enters this next phase?
Mikir Shah: I’m really excited about taking the difference we’ve made in Africa to other developing markets. We can see there’s a need and a lot to do, and we want to be there to help. So I’m really excited about that.
Sam Casey: Have you seen tangible examples where you’ve worked on a risk and thought, that’s really made a difference, that’s why we’re here?
Mikir Shah: Absolutely. I’ll give you an example. The first policy we wrote was for a cobalt mine in the DRC, owned by a Kazakh company. We now cover both, and we’re supporting that company as it expands into other developing markets, which are inevitably resource-rich. That helps those countries develop. One of the other things we’re pushing for is value creation within the market itself, rather than ore being shipped around the world and refined somewhere else, so the value is created in another market. We’re pushing that quite strongly. Local governments across developing markets are pushing for it too. They want refining to happen on their own soil, and we’re there to support them. Throughout everything we’ve done, we’ve also worked with governments trying to encourage investment into their countries. Every government wants that, because the more investment they get, the more development they have. We’ve de-risked around $80bn of assets since we launched. It’s a vast amount.
Sam Casey: Well, Mikir, I’ve really enjoyed speaking with you today. Thanks for telling me about the business.
Mikir Shah: Thank you very much, Sam.
Sam Casey: That’s all for this episode of Behind the Headlines. We’ll be back again in two weeks’ time.