Mergers and acquisition may be the direction for market growth and penetration in Nigeria’s insurance sector, BusinessDay investigations have shown. This is as the market is currently dominated by only five biggest insurers, according to 2013 results.
BusinessDay analysis shows that Mansard Insurance plc, Custodian and Allied Insurance plc, AIICO Insurance plc, Continental Re-Insurance plc and Niger Insurance plc were responsible for 82 percent of the total net premium income of N68.60 billion recorded by the 11 quoted insurance companies whose results for the year under review were analysed, leaving the other six firms cumulatively contributing just 18 percent.
Analysts who spoke to BusinessDay at the weekend say this dominance by few firms may be responsible for the low premiums earned against Gross Domestic Products (GDP) of 0.57 percent as against average of 3.38 percent for African peers, adding that the development calls for consolidation to pool resources for emerging competition.
“We expect the small players to shore up their capital base or embark on mergers and acquisition (M&A) to be able to compete with big players,” said Kayode Omosebi, equity analyst at UBA Capital plc, a Lagos-based investment bank.
“This will enable them benefit immensely from the great potential as insurance penetration (premiums earned/GDP) of 0.57 percent compared with the average of 3.38 percent for African peers portends a great prospect in this industry,” he said.
Nigerian insurers are underperforming their African peers as regards penetration levels, despite having a market of over 170 million people and economy valued at $503 billion.
Only 1.5 percent of the adult population or about 1.3 million adults have an insurance policy, according to data from Financial Derivatives Company (FDC).
“We believe that the insurance market may see further consolidation in the next two to three years, backed by the need scale,” said the managing director a Nigerian insurance company at a press event earlier this year.
Recent mergers are already beginning to reshape the industry. Old Mutual Insurance Fund plc, a South African insurance company, recently finalised its investment in Oceanic Life Limited, a Nigerian firm, by acquiring the majority shareholding of the company.
“Consolidation, mergers and acquisitions have become necessary in order for the sector to meet the new and challenging environment,” said Sani Abdulrahman, former managing director, Great Nigeria Insurance Company, earlier this year at an event organised by stakeholders.
Foreign groups such as Assurance Africa Holdings, SA Holdings and New India Assurance Company have bought major stakes in existing local firms – Mansard, ADIC Insurance and Prestige Assurance. Others such as Liberty Holdings have expressed interest in the industry.
Nigerian counterparts have also stepped up their game to increase market share and profitability. Custodian and Allied plc acquired Crusader Insurance plc in a bid to spread its wings across the two major insurance businesses, life and general, and also to extract income from pension and trust businesses.
The insurance industry value is expected to grow to N877.0 billion and contribute 7.3 percent to GDP in 2018, according to Bismarck Rewane, chief executive officer, FDC, at a recent insurance stakeholders’ conference in Lagos.
South Africa, the continent’s largest insurance market, recorded new investment premium of $19.6 billion in 2012, which is about 5 percent of its GDP of $350 billion, according to a March 2013 insurance sector report by PwC.
The gross premium written of the 11 analysed firms surged by 29.18 percent in 2013 to N108.03 billion, compared with N83.63 billion the preceding year, with the big five contributing over 75 percent of the total figures.
“The big players are leveraging on technology and strong partnership with the telecoms sector to access the market, which is paying off as shown in the significant growth in premiums,” said Omosebi.
Nigeria’s insurance industry consists of 59 insurance companies and two reinsurance companies, of which 24 are listed on the Nigerian Stock Exchange.
BALA AUGIE
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