Champion Newspapers Limited
For a better society

 Insurance industry: Still much motion but little movement

31
Print Friendly, PDF & Email

As Nigeria celebrates her 61st independence anniversary which coincides with the sixth year of Muhammadu Buhari’s presidency, stakeholders in the nation’s insurance industry are reluctant to admit that the sector is upbeat in terms of growth and profitability

 

There is no gainsaying that the last six years covering the presidency of Muhammadu Buhari has been that of a mixed bag for the business community in Nigeria; insurance sector inclusive; considering the numerous but staccato policies and programmes that dotted the Nigerian space.

Like every other facet of the Nigerian project, the business community was upbeat upon the ascendance of Buhari as president of the country in 2015 against the backdrop of the many promises  and programmes which were contend in the blue print of his political party, the All Progressive Congress (APC) consequent upon which Nigerians voted him into power. Besides, Buhari’s presumed antecedents as a focused leader helped in raising the stakes whereby individuals and corporate bodies anxiously waited for a roller coaster sort of cruise constituting of a win-win situation for all stakeholders.

It is on record that insurance industry been one of the oldest professions in the country was among the group which considered itself to fall among the frontline beneficiaries of a Buhari presidency which would be characterized by growth in the socio-economic and environmental jurisdictions.

Since insurance is never known to be a standalone industry but is rather the sector which growth is measured by the quantity and quality of the growth and activities of virtually all of the other sectors against the backdrop of the belief that insurance is more of a support service industry, it can be said that insurance industry have not witnessed much growth and expansion in the last six years.

It is therefore not surprising that many analysts are hesitant to conclude that insurance is in the growth trajectory under the Buhari administration except to the point that any such growth is attributable to inflationary trends as opposed to real growth which the sector has desired.

It is been said that the continuous slide in the numerical strength of manufacturing firms, start-up companies, small and medium scale enterprises and related outfits are negative drivers to the expansion of the insurance market . And this indeed is the sort of picture which is the face of the business community in Nigeria which the insurance industry is positioned to serve and draw sustenance from.

It is perhaps in the pension subsector of the insurance operation that analysts seem to have discovered  positive and steady push moving north under the Buhari presidency  in view of the impact of the Contributory Pension Scheme (CPS) which Act was signed in 2004.

Pension fund operators in the country are known to have invested N8.51 trillion from the 12.78 trillion total pension fund assets into federal government securities. The nation’s pension fund assets rose significantly to N12.78 trillion as at the end of July, 2021, by N120 billion, from the N12.66 trillion figure as at the end of June, 2021.

The N8.51 trillion is the amount invested in FG securities since the inception of the CPS with the bulk of the investments been made in the last five years when the pension industry embarked on expansive fund mobilization courtesy of fruitful harvests from such new products as the micropensio and the redenomination of federal government’s hitherto outstanding pension arrears.

Investigation showed that the pension fund operators have always preferred federal government securities over other investment options because it is easy to recoup while also giving good investment returns.

To this end, more than 70 per cent of the pension funds have so far been invested in these securities thus  allowing the federal government meet its civic responsibilities of paying salaries, fix damaged infrastructure as well as embark on capital intensive projects. This also forms the bulk of federal government local borrowing.

A breakdown of data from the National Pension Commission (PenCom) showed that FG bonds gulped N7.67 trillion investment; treasury bills investment was N721.74 billion; agency bond N12.91 billion; Sukuk bonds, N85.09 billion and green bonds N12.88 billion.

Unfortunately however and inspite of the efforts of the insurance industry’s regulatory body the National Insurance Commission (NAICOM) in collaboration with industry operators, the industry appear not to have fared any better under the current dispensation where the major cash cows for the industry like the manufacturing, oil and gas, and householder policyholders are obviously for faring well enough as to shell out lifelines to the risk management and underwriting sector.

It is on record that the numerical strength of insurance companies and insurance broking firms have witnessed drastic reductions on the back of shrinking business opportunities. The rising cost of doing business occasioned by unfriendly business environment is one that is impacting negatively on the bottom line of insurance companies. Although NAICOM registered four new insurance companies and one reinsurer last  year November, the first of  such licensing in around 35 years, the act was not enough to paint a positive image for the market where the operators have a drying well to draw water from in terms of business availability.

While it can be said that the ongoing recapitalisation exercise in the insurance industry is one that will change the face of risks management and underwriting practice in Africa’s most populous nation, the difficulties and controversies which have continued to characterize the exercise tend to suggest otherwise.

Now in its 28th month since May 2019 when it was flagged off, the exercise which is expected to bring in an estimated N180 billion into the industry is also expected to help increase the sector’s capacity to underwrite big ticket risks, contribute reasonably to the economy and also able to offer good returns to investors.

Industry experts believe that the sector post consolidation will have enough resources to attract quality manpower, acquire necessary skills and technology, increase retention in the local market, and be able to take advantage of untapped potentials to create shareholder value.

Above all, the sector’s recapitalisation is expected to drive market development for expansion and increased penetration to the nook and crannies of the country, where insurance will no longer be seen as an elitist product, but one that will be a major financial planning and wealth creation tool for majority of the citizens.

Experts describe market development as a growth strategy that identifies and develops new market segments for current products.

It is also a market development strategy that targets non-buying customers in currently targeted segments, as well as targets new customers in new segments.

The import of this definition is that the industry players both the regulator and the operators will have a big role to play post consolidation in growing this market, deepening penetration, maximizing the injected capital by developing old and nurturing new markets. All these conjecture3s are consequent upon the successful conclusion of the recapitalization exercise. But financial analysts are afraid that the current socio-political and economic environment of the country are not favourable for the realization of such dreams especially where investors both indigenous and foreigners are hesitant to pour their funds into Nigeria’s investment basket.

The nation’s insurance industry is still talking about potentialities given the huge population of over 200 million people and dastardly low penetration level of less than one percent, factors which analysts said ought to have been the attraction for many foreign insurers to come in their numbers to take position in the market since the last six year now.

The industry at its current capital is only able to take about 30 percent of the risk emanating from the oil and gas sector, according to statistics from the industry trade groups.

This development, according NAICOM has been due to lack of capacity, particularly funding which is why a lot of the risks emanating from the local market are still largely ceded abroad through reinsurance.

This recapitalisation therefore is expected to create supply side capacity for local content utilization, given the provisions of the Act.

NAICOM had on 20th May 2019 increased the minimum paid-up share capital of Life Insurance companies from N2 billion to N8 billion; Non-Life (General) insurance from N3 billion to N10 billion and Composite Insurance from N5 billion to N18 billion. Re-insurance companies were also directed to raise their capital base from N10 billion to N20 billion.

Unfortunately however, the exercise has never witnessed a smooth sail with so many postponement of implementation deadlines and court injunctions challenging the desirability of the project. Getting foreign investors has remained as difficult as it getting funds from the capital market for such exercise.

Section 49 of the Nigerian Oil and Gas Industry Content Development Act, 2010 in Nigeria requires all investors in the oil and gas industry to insure all their insurable risks relating to the oil and gas business, operations or contracts with an insurance company, through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended.

While Section 50 of the same Act requires that where an operator desires to place insurance risk outside Nigeria, it can only be done with the written consent of the insurance sector regulator, the National Insurance Commission (NAICOM), which shall ensure that Nigerian local capacity has been fully exhausted.

Experts in the insurance industry have continued to call on the government to create stronger regulatory policies and enforce existing ones to stimulate growth in the industry. Looking at how the insurance sector closed the previous years, it is expected that the issues and discussions that dominated those years  will continue. Such discussions include the political will of the federal government to insist on embracing the culture of insurance whereby its projects and property are insured. The Buhari presidency is not known to dance along this line except in the area of paying pension arrears which is one major factor which have impacted positively on mobilization of investible funds as per pension assets.

The Managing Director at Law Union & Rock Insurance Plc, Adeduro Ademayowa, said t

Take for example, the capital project in the 2021 budget was estimated at N3.85 trillion; about 30 per cent of the budget. This is expected to generate economic activities. If all projects were insured, they are capable of generating between N50 billion and N80 billion for the insurance industry.

There is still a bill for the consolidation of insurance laws before the national assembly. This bill, it seems is not getting the desired pushed thus fueling the fear that it may not see the light of the day under the current dispensation thus adding to the many woes of the industry under the Buhari leadership. NAICOM is seeking for the passage of the Insurance Consolidated Bill, 2020 to drive the development of the sector.

Commissioner for Insurance and Chief Executive Officer of NAICOM Mr Sunday Thomas said, “We have so many compulsory insurances that one can hardly find in any other jurisdiction. The problem has been enforcement and lack of cooperation among operators. With the advancement and deployment of present-day technology it is expected that all compulsory insurances will be adequately enforced. The proposed insurance Bill now before the National Assembly, when it becomes law, will assist tremendously in growing the insurance sector.”

As the nation continues to diversify her revenue base, it is assumed that the creation of such environment and policies which will grow the non oil sector of the economy would be capable to impact positively on the health and profitability of the nation’s insurance industry hence the operators are insistent on seeing a Buhari administration which will foster economic growth beyond what obtains presently.

 

 

Kkkkkkkkkkkkkkkk

 

Said again, the industry is no doubt getting bigger with different aspects of the market requiring special skills and knowledge for growth and sustainability.

Importantly, and most demanding at the moment according to NAICOM is the growing size of annuity business following increasing growth in pension funds assets standing at about N10 trillion today, to which large chunk of it is expected will empty itself in the insurance business.

Given this challenge therefore, the ongoing recapitalization of the industry which also forms part of NAICOM’s second phase of its Market Development and Restructuring Initiative (MDRI) holds the big future of the business.

MDRI according to NAICOM will be re-unveiled soon and will come with mark out clear targets and tasks for all stakeholders in the industry, with commitment to vigorously pursue the continued implementation of the different Compulsory Insurances.

NAICOM had on 20th May 2019 increased the minimum paid-up share capital of Life Insurance companies from N2 billion to N8 billion; Non-Life (General) insurance from N3 billion to N10 billion and Composite Insurance from N5 billion to N18 billion. Re-insurance companies were also directed to raise their capital base from N10 billion to N20 billion.

To this end, underwriting firms have begun the process of sourcing for funding through wooing of equity investors, while also leveraging on the capital market to increase their capitalisation to the minimum threshold.

Similarly, eight insurers who are considering business combination are about finalising discussion with the parties involved, thanks to deadline extension because more time was needed to  seal such business deals. On Going Efforts:

Ten months into the  31st of December 2020 deadline given to insurance and reinsurance companies in the country to recapitalise, about 50 per cent of operators are still at the preliminary stages of implementing their recapitalisation plan, with no fewer than 10 companies already  in the capital market for funds to meet the capital requirement.

Some of the companies raising funds in the market includes:  WAPIC Insurance Plc, LASACO Assurance Plc, Consolidated Hallmark Insurance Plc, AIICO Insurance Plc, Sovereign Trust Insurance Plc among others. While some others have also received funds from private equity investors to bolster their capital need amongst them are Royal Exchange General, Law Union and Rock, AIICO among others.

For most of the foreign companies, including Allianze Nigeria, Old Mutual Nigeria, Zenith Prudential, SUNU, NSIA Insurance among others there parent companies have shown strong indication to recapitalise them before the deadline of December 2020.

Other companies Like Cornerstone Insurance, Linkage Assurance, Custodian and Allied Insurance, Leadway Assurance, FBN Insurance, Anchor Insurance, Mutual Benefits, Zenith Assurance among others are looking at their internal systems to meet the requirement.

Meanwhile, findings show that some other firms are currently selling off their real estate properties in a bid to increase their capital base.

Since there was a limit to admissible assets, some have resorted to sale of some to raise funds to meet the new capital requirement.

Sunday Thomas who is the  Commissioner for Insurance/CEO of NAICOM told House Committee Members of the National Assembly on Insurance and Actuarial Maters recently that the Commission had in 2019 initiated the process to recapitalise the insurance industry in order to upscale its financial standing to meet up with current economic realities and avoid imminent systemic collapse and solvency crisis in the insurance sector.

Thomas said this will ensure that the industry becomes more robust in its technical competence and financial base, build confidence, trust and enhance market value.

“It is further aimed at repositioning the sector for self-actualization in terms of growth and development.”

To him, “the whole idea of the recapitalisation exercise is to have an industry that is strong; diligent in prosecution of its assignments; highly liquid in terms of claims settlement, and solid in terms of assets and visible in terms of retaining business within our environment.”

Stating that the regulatory body will welcome investors either into existing companies or totally new companies, as the supreme aim is to have an insurance industry that is able to support the government in its initiatives, creates employment by reason of expansion, and at the end, add value to our economy.

The Managing Director/CEO, Access Bank Plc, Mr. Herbert Wigwe, had said that the recapitalisation exercise would increase insurers’ capacity to underwrite transactions in sectors, such as; Oil and Gas, Marine, Aviation, Technology, among others.

In terms of product offerings and customer experience, he said, the sector must grow big enough to provide cover for huge exposures.

While calling for strategic partnership and alliances with tech partners post-recapitalisation, Wigwe said, with the advent of innovation, traditional insurance companies must partner with upcoming insure-techs so as to explore the technological and growth opportunities there from and give customers better and more innovative product offerings.

“Claim verification processes must also be reviewed to foster trust and partnership with the Banks for viable Bancassurance opportunities are a formidable route to growth, he pointed out.

Yetunde Ilori, Director General of the Nigerian Insurers Association  had noted that the extension of the deadline gives insurance companies ample time to comply with the directive instead of having to go into the exercise without adequate preparation and diligent execution.

She said “Now that the Commission has provided the needed impetus for members to go about the exercise, it is my appeal that member companies should give the exercise all the seriousness it deserves.

Ilori said “We need to appreciate the Commission’s gesture by working hard to achieve the recapitalization threshold set for our various businesses. That way, we will encourage the Commission to churn out more market friendly policies” she averred.

“For our members, the onus is on them to take advantage of the new date as some of the initial challenges thrown up by the first date have been addressed with the extension granted. It is our hope that whatever recapitalization option they have to take, the new timeline will give them ample opportunity to do so. The NIA wishes members success in their recapitalization plans and pray for a hitch free exercise”.

 

Comments are closed.