• Tuesday, March 19, 2024
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BusinessDay

Fringe players jittery as insurers look to bigger consolidation

Insurance

Consumer goods, financial services top attractive investment sectors in Nigeria – KPMG surveyfringe players in an almost cash-dry capital market where raising fund has become difficult for underwriters.

BusinessDay learnt that the National Insurance Commission (NAICOM), the industry regulator, may be announcing a new capital requirement soon in line with its commitment to strengthen capacity of operating companies.

A source in NAICOM said it will not be long before operators will be asked to shore up their capital whether the tier-based initiative earlier announced but later cancelled by NAICOM  takes effect or not.

But fringe players in the industry are jittery as the development threatens their continued existence as individual entities. The new capital requirement will push small players to consider mergers and acquisition or face the risk of extinction.

A number of industry players who spoke with BusinessDay anonymously said the feeling among small players in the industry is one of apprehension as their future hangs in the balance.
But analysts say the new capital requirement, when it comes into force, will be good news for an insurance industry in dire need of consolidation.

There are too many small players in the Nigerian insurance industry, Andrew Nevin, chief economist at PwC, said at the 2019 Business Outlook Seminar for the insurance industry.
There are 41 general insurance business companies and 27 life insurance companies as at the end of 2017 financial year, according to data from the Nigerian Insurers Association.

Nevin said having too many small players will not enable the industry to attract the right investment and needed competition to drive growth. There is, therefore, the need to discover the sector’s growth catalysts, while the next effort will be on how to regain customer trust by ensuring that claims are paid promptly and offering other quality service experiences, Nevin added.

Yinka Adelekan, executive director, Agusto &Co, told BusinessDay in a telephone interview that recapitalising the insurance industry will be a healthy development because it will enable players in the industry to up their take in a business acquisition.

Adelekan said that increasing the capital requirement will enable insurers to take up big ticket risks and spend on innovation and technology to increase penetration.

She said that the tier-based capital earlier introduced for insurance companies but later cancelled was not a bad idea, but noted that the timeframe was too short for players to achieve a meaningful result.

“Recapitalisation is good, but enough time should be given to the players to look for funding, either to access the capital market or consummate mergers or acquisition,” Adelekan said.
Analysis of the premium generated by insurance companies in 2017 shows that top five companies in the general business control 41 percent of the over N203 billion premium from direct businesses, while seven of the companies control 50.13 percent.

Companies ranked in order of premium show that Leadway Assurance leads the rest with N22.90 billion premium, equal to 11.28 percent of the total direct premium in the general classes of business; Custodian and Allied generated N20.06 billion, equal to 9.88 percent; AXA Mansard N17.03 billion, equal to 8.34 percent; NEM Insurance N13.42 billion, equal to 6.51 percent; and Zenith General N10.5 billion, equal to 5.00 percent.

In the life business, five insurance companies hold 75.2 percent market share, equal to N121.58 billion, out of the total premium of N161.59 billion generated from direct businesses in 2017.

Out of the 27 life companies, Leadway Assurance is ahead with N61.3 billion, equal to 37.93 percent, followed by AIICO Insurance plc which generated N21.68 billion, equal to 13.42 percent. FBNInsurance generated N19.58, equal 12.12 percent; Custodian Life Assurance N12.16 billion, equal to 7.5 percent, while Niger Insurance generated N6.87 billion, equal to 4.25 percent.

Mohammed Kari, commissioner for Insurance/CEO, NAICOM, had said before commencement of the cancelled tier-based capitalisation that some insurance companies have not been able to pay dividend for many years, some cannot pay claims, and some cannot pay salaries regularly.

“We have given them opportunity to voluntarily decide on what to do with themselves or we will force them,” Kari said, adding that NAICOM would soon work out modalities to address these challenges.

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