Chiamaka Ajeamo, [email protected]
As the coronavirus pandemic continues to spread across borders, killing thousands and spiking downtrends in markets while shutting down several economies, analysts have projected a global recession could happen within the year.
The above prediction coupled with the current fall in oil price is raising palpable concern for businesses in Nigeria and the insurance industry is more worried that these developments might negatively impact the sector’s ongoing recapitalisation exercise.
According to them, the present decline in oil price, the impending devaluation of the naira and the global pandemic would to a large extent affect sourcing of funds for the recapitalisation drive, as inflows for the process are usually garnered from local and global investors.
However, experts in the insurance industry are optimistic that the pandemic despite its negative impacts, presents opportunities which can grow the Nigeria’s insurance penetration level as well as affect the recapitalisation journey positively.
Speaking with Daily Sun, the Managing Director/CEO, African Alliance Insurance, Funmi Omo, said there are quite a lot of positives in the development of the pandemic especially, as it concerns the life insurance industry.
“The pandemic has brought to fore what we usually preach: life is too fragile to be left to chance. There is need to assure succour for yourself and loved ones should the unknown happen and one way to do that is through life insurance.”
“Naturally, the slump in global crude oil, world recession (technically), economic meltdown and interest rate crash will result in low drive for investments because the economic indices will not stimulate investments and economic growth.
“But as per recapitalisation, plans have gone very far before the pandemic of Covid-19 erupted and so, it is not expected to impact on recapitalisation except the pandemic is not arrested within a short time frame. That to me is doubtful. The virus as like every other virus has a lifespan. The only thing is that within the timeframe, its impact will be far-reaching on economic growth”, Omo said.
For his part, an insurance consultant, Mr. Ekerete Gam-Ikon, said Convid-19 has already triggered global recession because the impact of the shutdown the world is currently experiencing will be felt in the quarters ahead considering that the pandemic started in China, a key global economic super powerit is only natural that trade exchanges with other economies will dip, just as we have seen. Then, the weaker economies will be even more challenged to recover hence recession in many economies.
Gam-Ikon said:“In my opinion, it might affect recapitalisation positively. I say this because more investors will be forced to look at areas that can enable them minimise their losses in terms of Returns on Investment (RoI). If they consider that under the circumstances, Nigeria provides a viable opportunity for higher returns in the next three- five years, they will most likely go ahead to inject funds in our recapitalisation process. However, it is important for the operators and regulators to provide such information that will support a position like I have posited.
“With the increasing participation of global insurance brands in the Nigerian market, one can hope that insurers in Nigeria would adopt effective ways of communicating the offerings they have to help citizens respond better to insecurity, diseases, disasters and poverty.
“For the sector, I do think there are opportunities in this situation that can be explored to give us some advantages into the future. We cannot be fully prepared to respond to crisis whether economic, political or social without insurance. We must explore the benefits of insurance as we seek ways to manage any virus at any time.
“There are more discussions about risks now and citizens are open to receiving useful information about solutions and insurance can become a hot topic of discourse. Can people take up health insurance now in case the virus spreads more? If yes, can the leadership of the insurance industry in Nigeria seize the opportunity to inform the public and invite them to take up insurance policies? The insurance industry should be more involved”, he stated.
Meanwhile, a recent report by S&P Global disclosed that the economic effect of Covid-19 has worsened sharply though, economic data remains scarce, the long anticipated initial figures from China for January and February appear much worse than feared.
According to S&P, the increasing restrictions on person-to-person contact in Europe and the US have sent markets reeling as risk-aversion rises and views on economic activity, earnings, and credit quality deteriorate sharply.
“The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation has begun,” said S&P Global chief economist, Paul Gruenwald.
“Europe and the US are following a similar path, as increasing restrictions on person-to-person contacts portend a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.”
Though economists have affirmed that global central banks have swung into action and are undertaking some combination of sharply reduced policy rates, resumed assets purchase and liquidity injections; fiscal authorities have generally lagged but have begun to loosen the purse strings; S&P Global suspects that larger and more targeted spending to the most affected groups is forthcoming.
However, Swiss Reinsurance Institute analysts noted that the recession might be mild in a historical context, although economic growth will likely slow down quite abruptly in Japan and the Eurozone, including in Italy, France and Germany.
“We expect a global recession with economic risks having intensified abruptly,” said Jérôme Haegeli, group chief economist, Swiss Reinsurance
“Fact is: the coronavirus is hitting the global economy when economic resilience is already weak to start with.
“The US and China are projected to remain more resilient, although the risk of both a US recession and China hard landing has risen to a very high 40 per cent.
Going further, Swiss Reinsurance predicts additional monetary easing but said that central bank action will need to be coordinated with forceful fiscal expansion to be effective.
It noted that few fiscal measures have been proposed thus far outside of Asia, with coordination among the G7 countries most likely if the situation deteriorates further.
In addition, global bond yields will remain even lower as US rates are quite likely to temporarily go below zero per cent.
Given market dynamics, Swiss Reinsurance forecasts US 10-year yields to remain below 1 per cent until the end of 2021, possibly going as low as zero or below temporarily, even without a technical recession domestically.
The coronavirus outbreak in the EU and US is still intensifying with the whole of Italy under quarantine, but analysts believe that the spread of the virus in China appears to have peaked, with early signs of normalising activity.
In China, Swiss Reinsurance has lowered Gross Domestic Product (GDP) growth to 4.8 per cent in 2020 and 5.5 per cent in 2021, with a strong rebound in growth anticipated in the second quarter of the year.