Insurance capacity constraints continue to force African energy risks offshore, despite regulatory reforms and continental integration efforts

A $400 million solar-plus-storage project in West Africa recently went to market for insurance placement. Local carriers could retain just $18 million-4.5% of the total risk. The rest flowed to London, Munich, and Zurich. This isn’t an outlier. It’s the pattern across every major energy project on the continent, and despite two decades of insurance market liberalization and regulatory push for local content, African energy risks remain fundamentally uninsurable within Africa itself.

Nigeria illustrates the challenge. Following regulatory recapitalization in 2024, minimum capital requirements increased to N15 billion (approximately $9.4 million) for non-life insurers and N10 billion for life insurance companies. While this represents meaningful strengthening, individual insurers still face severe limitations on single-risk exposure. Regulatory prudential limits typically cap retention at 10–15% of statutory capital for any individual risk, meaning even well-capitalized carriers can retain only $10–15 million on large energy projects before exhausting capacity.

A single liquefied natural gas terminal requires $500 million to $1 billion in combined property damage and business interruption coverage. Mid-sized renewable energy projects routinely need $100 -200 million in comprehensive cover. The arithmetic doesn’t work: African insurers collectively can typically retain only 5–15% of major energy risks before reaching capacity limits, forcing immediate cession to international reinsurance markets.

Currency dynamics compound the problem. Energy projects finance in dollars or euros; lenders require matching currency coverage. Local insurers operating in naira, cedi, or kwachas face immediate currency risk if they attempt meaningful local retention. Devaluation events-common across African markets-can quickly render local capital commitments inadequate, further pressuring insurers toward minimal retention strategies.

When Total declared force majeure on April 26, 2021, following insurgent attacks in Cabo Delgado, the subsequent claims process involved complex coordination across fragmented reinsurance panels spanning multiple jurisdictions. The project, which had support from 31 financial institutions, faced extended settlement negotiations. Premium benefit-estimated at $45 million annually-had already left the continent before the force majeure event occurred.

The pattern repeats across major African energy developments. Tanzania LNG, Senegal’s offshore gas projects, and numerous renewable energy facilities demonstrate similar dynamics: nominal local participation through fronting arrangements, minimal retention (typically 3–8%), and overwhelming dependence on international reinsurance capacity for risk transfer.

Kenya’s geothermal program represents Africa’s most successful local capacity building effort. Local insurers received specialized training in geothermal risk assessment specifically to retain premiums within the local market, and the Insurance Regulatory Authority established a geothermal risk underwriting facility. Even here, however, catastrophic loss layers and business interruption coverage flow predominantly to international markets. The model demonstrates what’s possible with deliberate capacity building but also reveals the limits: two decades of focused development have produced meaningful but still constrained local retention.

For project developers and financiers, persistent insurance market fragmentation translates to higher costs, complex claims processes, and cross-border settlement risk. Lenders increasingly require step-in rights and direct access to reinsurers, effectively bypassing local markets and further limiting their development opportunities.

The 459-megawatt Azura-Edo power plant in Nigeria exemplifies the operational reality. Despite being Nigeria’s flagship independent power project with robust government support, insurance placement follows the standard pattern: local fronting with less than 10% retention, balance ceded offshore. Claims adjustment requires international loss adjusters, documentation disputes involve multiple jurisdictions, and settlement timelines extend beyond what project finance structures comfortably accommodate.

Risk pooling mechanisms offer partial solutions. The African Energy Guarantee Fund provides partial risk guarantees that can enhance local insurer participation. The Africa Trade Insurance Agency writes political risk coverage that complements traditional property programs. But these facilities remain small relative to market need and haven’t fundamentally shifted the local-international retention balance.

Parametric structures present interesting alternatives. Solar farms with agreed production curves can trigger predetermined payouts based on measured irradiance data, eliminating loss adjustment disputes. Index-based business interruption coverage for wind farms can settle automatically based on anemometer readings. These structures reduce information asymmetry and could enable greater local retention by simplifying claims processes-but uptake remains limited, partly because lenders remain conservative about non-traditional coverage structures and partly because local insurers lack expertise in parametric product development.

Three dynamics will shape local insurance capacity over the next 3–5 years.

Regulatory harmonization under the African Continental Free Trade Area could enable cross-border insurance provision without country-by-country licensing. This would allow South African and Kenyan carriers to operate regionally, creating larger capacity pools. Insurance services liberalization wasn’t prioritized in phase-one protocols, but progress here could materially shift capacity dynamics by 2027–2028 if implementation accelerates.

Climate-linked development finance facilities are beginning to explore local currency insurance products with first-loss protection from development banks. If the African Development Bank or World Bank provides 20–30% first-loss coverage in hard currency, local insurers might retain larger portions in local currency with acceptable risk profiles. Early pilots in renewable energy suggest this model could work, but scale remains minimal relative to overall market need.

Mandatory local retention requirements are intensifying. Nigeria’s recapitalization drive, with new minimum capital thresholds for insurers and N35 billion for reinsurance companies, aims to strengthen domestic capacity. Francophone Africa is raising minimum local content from 15% to 25–30% of total coverage. However, these requirements often result in fronting arrangements that satisfy regulatory form without addressing underlying capacity constraints. Insurers simply charge higher ceding commissions to reinsurers for bearing additional credit risk, raising project insurance costs without improving meaningful local risk retention.

The fundamental tension persists: achieving Africa’s energy and climate goals requires over $200 billion in annual investment, with close to $1 trillion needed in new power generation capacity by 2040. Yet local insurance markets can meaningfully retain coverage for perhaps 5–10% of those assets under current capitalization levels. Until capital deepens dramatically-requiring either massive foreign insurer entry, regional consolidation, or development bank-backed capacity vehicles-African energy risks will continue generating billions in insurance premiums for markets located elsewhere.

For risk managers and insurers, this creates predictable challenges. Budget for 12–18 month claims settlements on major losses. Structure policies with clear reinsurer panels and settlement procedures established upfront. Consider parametric alternatives for risks with objective measurement indices. And watch regulatory harmonization efforts closely-the first mover into regional energy insurance could capture substantial market position if cross-border barriers fall.

The local capacity gap isn’t closing naturally. It requires deliberate construction: capital infusions, regulatory coordination, and risk-sharing mechanisms that bridge the gap between project scale and market capacity. Until then, the pattern continues-African energy development generating offshore insurance profits.