By Chiamaka Ajeamo [email protected] 08060655687
Agusto & Co. Limited, a pan-African credit rating agency has estimated in its 2021 insurance industry report that Nigerian insurance industry Gross Premium Income (GPI) for the financial year ended December 31, 2020, is estimated to record a 15 per cent growth,.
The annual report which provides a comprehensive review of the insurance landscape in Nigeria and the near term expectation for the industry, this year, reviewed the coronavirus pandemic as it affects the insurance industry and strategies adopted by insurers to minimise the associated disruptions while optimising the opportunities provided by the pandemic.
According to Agusto & Co. innovation in product distribution induced by the pandemic, regulatory-backed opportunities including the digitisation of marine insurance certificates and increasing awareness of the benefits of insurance products were some of the GPI growth drivers during the 2020 financial year.
The report further noted that the violence that trailed the #EndSARS protest in October 2020 adversely impacted the industry in terms of additional claims, which in turn impaired profitability for the 2020 financial year and would moderate the performance of some insurers in 2021. Nonetheless, the riot that trailed the protest emphasised the importance of insurance products, particularly with the absence of a robust social security system in Nigeria.
In the light of the above, Agusto & Co. was of the view that the violence that trailed the protest could be a catalyst for insurance uptake, given that the insurance penetration rate has remained less than 1 per cent in Nigeria.
It further stated that it expects the on-going recapitalisation exercise to change the structure of the industry noting
that, the persistent naira devaluation has reduced the strength of the industry’s capital since the last recapitalisation exercise in 2007.
Although some insurers have strengthened their capital base through earnings retention, the ability of most industry operators to solely underwrite large ticket transactions has dwindled based on the lower value of the capital in USD terms.
As at December 31, 2020, the industry had an estimated capital base of $1 billion, significantly lower than $2.2 billion recorded as at December 31, 2007. As a result, the National Insurance Commission (NAICOM), the apex regulator in the industry, raised the minimum capital to N8 billion from N2 billion, N10 billion from N3 billion, N18 billion from N5 billion and N20 billion from N10 billion for life insurers, non-life insurers, composite insurers and reinsurance firms respectively.
However, the recapitalisation exercise suffered some setbackparticularly as the COVID-19 pandemic ravaged the global economy, Nigeria inclusive. Consequently, NAICOM postponed the deadline for the recapitalisation exercise which was later stratified into two phases; December 2020 and September 2021.
In addition, litigation by some industry operators and aggrieved shareholders resulted in the postponement of the December 2020 deadline for the first phase of the recapitalisation exercise.
Notwithstanding the setbacks, Agusto & Co. believes the recapitalisation exercise could be a watershed in the industry.
In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns. The recapitalisation exercise has elicited mergers and acquisition transactions in the industry.
To this end, Agusto & Co. stated that it anticipates an uptick in these transactions as the deadline draws near.
“The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the industry. With the gradual rebound of the global economy, more foreign investors are expected in the industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry.
“The entry of new players after the embargo that lasted over a decade was a key point in the industry. In November 2020, six new operators were licenced in the life, non-life and reinsurance segments of the industry.
The firm anticipates the entry of more players, particularly from existing financial institutions seeking opportunities for diversification of income. We believe that the new players will intensify competition in the industry. New insurance products and business practices are also expected from these new players.”
Speaking on the industry’s performance for the year, Agusto & Co. said it expects a better performance by the industry in the near term if opportunities accruing from the pandemic and #Endsars are optimised. Also, the gradual increase in the prevailing interest rate will also support the investment income of insurers; the Credit rating agency stated.
“It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers. Notwithstanding, Agusto & Co. believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the industry,” the report concluded.