Insurance regulator, the National Insurance Commission (NAICOM) is positive that the ongoing recapitalization exercise in the industry will help boost retention capacity.
According to the commission, a lot of the risks emanating from the country were being insured abroad through reinsurance.
Mohammed Kari, commissioner for Insurance who spoke during an interview with Journalists said the recapitalization exercise will strengthen the operating companies and enhance their capacity to absorb more risks.
“The ongoing recapitalisation exercise will allow local insurers to retain huge risks in the country, thereby, avoiding premium flight, and in the long run increase the profitability of the sector and its impact on the nation’s economic growth and development, he noted.
While stating that the recapitalisation is long overdue as foreign exchange rate, asset replacement values as well as claims volume have increased in the last 12 years, he added that, operating with the current capital base is putting insurance firms at risk.
He said, insurance operators are fond of resisting recapitalisation exercise, whenever the idea is mooted, saying, some insurers prefer to continue to write huge risks in aviation and marine sectors, with small capital, a development, he said, was responsible for why some underwriting firms are struggling to pay claims.
On whether there is the need for recapitalisation exercise at a time the country is transiting to Risk Based Supervision (RBS), he said, there is no insurance industry anywhere in the world that do not have minimum capital requirement, which is usually, the entry point.
“All over the world, there is usually an entry point , which is the minimum capital requirement for an insurer to underwrite risk in a country. Other decisions, whether to increase the minimum capital or maintain it is taken thereafter. So, even under risk based, the minimum capital still exist, Kari stated.
Analysts have lamented the low retention of risks by local insurers in the oil and gas, aviation and energy sector that has been described as volatile and vulnerable.
For instance, local insurers was said to retain only about 30 percent of the risks in oil and gas industry despite the implementation of local content law.
Speaking on the sideline of the recently concluded 46th African Insurers Organisation (AIO) held in Johannesburg, South Africa, Kari lamented the fragmentation of the financial sector in Nigeria
He said unlike most countries where the financial sector only has one regulator, overseeing the activities of the banks, insurance companies, pension fund operators and Health Management Operators (HMOs), Nigeria has series of regulators, each controlling each sub-sector of the financial sector.
He said, the Central Bank of Nigeria (CBN) controls the banks, the National Pension Commission (PenCom) controls the pension fund operators while the National Insurance Commission (NAICOM) controls the insurance industry, whereas in most other countries, these sectors were considered as one and are regulated by a single regulator, which gives the financial sector of these countries good ratings because the achievements are counted as one.
Whereas pension and Health insurance are classified as the products of Insurance industry in most countries, Nigeria’s case is an exception, he noted.
According to him, “Nigeria operates a fragmented financial sector which restricts insurance sector to only the conventional insurance products and services. Pension is seen as a separate industry as well as health insurance when other countries classify pension and health insurance as being under the insurance industry. This is a miss-normal, a situation that is affecting the growth of the sector.”
He said, such fragmentation is one of the reasons insurance penetration is said to be below one per cent, thereby, limiting the contribution of the sector to the nation’s Gross Domestic Product (GDP).
If health insurance and pension products were added as part of insurance industry, the sector’s contribution to GDP would be higher as well as the penetration rate, which will make Nigerian insurance industry compete favourably with its peers across the world.
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