Insurers in Africa’s largest economy are spending more on claims to generate each unit of premium income as exposure to the oil and gas sector heightens.
Despite growing insured loss from Egina FPSO (oil field) natural catastrophe, the general consensus is that the capital rules by the regulator will enable companies write more risk and meet claims obligation as and when due.
Total net claims expenses of 16 insurance companies were up 16.88 percent to N132.54 billion in December 2018, from N113.40 billion a year earlier, according to data gathered by BusinessDay.
Average cost of claims, otherwise known as loss ratio, increased to 46.98 percent in December 2018 from 40 percent as at December 2017. This means an insurer spends N0.46 on claims for every N1 generated in revenue.
“Major claims within the oil and gas may affect the industry and undermine profitability. The Egina claims are enormous and any company that writes it will be affected,” said Moronfola Monsuru, actuarial analyst at Wapic Insurance plc.
The facility, insured by Leadway Assurance Company Limited as lead insurer and over 10 other co-insurers, was said to have suffered damage in 2018 following a break and falloff of some part of the deepwater platform.
Located some 130km off the coast of Nigeria at deepwaters, the Egina oil field is one of Nigeria’s most ambitious ultra-deep offshore projects.
Primarily developed locally to accelerate the pace of Nigeria’s industrial fabric and the transfer of technology, the project is expected to produce 200,000 barrels of oil per day, i.e., close to 10 percent of the country’s total oil production.
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Insurers may jack up premium rates in class of business susceptible to claims like catastrophic events such as floods, albeit obligations to policy holders have reduced as there is more liquidity in the system following a new foreign exchange policy by the central bank and a rebound in crude oil price.
Julius Elusakin, analyst at NEM Insurance plc, said mounting obligations to policy holders are expected because more people are getting aware about their responsibility to claim their losses.
He added that the support from NAICOM, the industry regulator, to assist customers to access their claims also helped, adding, however, that it relates to corporate business.
“The claim frequency for motor vehicle has been high from our end. As the population is growing so is the rate of accident getting high,” said Elusakin.
The National Bureau of Statistics (NBS) in its latest figures indicated that there were about 11.8 million licensed cars on Nigeria’s roads as at Q4 2018, compared to 11.6 million in the corresponding period of 2017. According to the report, Nigeria witnessed a 2 percent increase in the number of licensed cars year-on-year, from Q4 2017 to Q4 2018.
A breakdown of the figures shows Leadway Assurance’s net claims increased by 25.44 percent to N34.41 billion in December 2018, from N27.41 billion as at December 2017. Loss ratio moved to 48.06 percent in the period, from 39.28 percent the previous year.
AXA Mansard Insurance plc’s claims expenses rose by 27.18 percent to N12.13 billion in the period under review, from N9.53 billion the previous year.
Custodian Allied Investment Insurance Plc’s claims expenses were up 10.07 percent to N15.30 billion in the period under review as against N13.90 billion the previous year.
AIICO Insurance’s claims expenses increased by 14.89 percent to N23.86 billion in the period under review, from N20.77 billion the previous year.
FirstBank Insurance’s claims expenses were up 9.50 percent to N4.71 billion in December 2018, from N4.30 billion as at December 2017.
Consolidated Hallmark Insurance’s net claims were up 26.48 percent to N1.80 billion in December 2018, from N1.42 billion as at December 2017. Loss ratio increased to 42.12 percent in the period under review, from 38.63 percent the previous year.
Law Union and Rock Insurance’s claims surged by 328.83 percent to N1.60 billion as at December 2018 while loss ratio moved to 54.71 percent in December 2018, from 14.26 percent the previous year.
The National Insurance Commission (NAICOM) has increased the minimum paid-up capital of insurance companies in Nigeria by over 300 percent. In the new capital base, life insurance companies will now have a minimum paid-up capital of N8 billion from the previous N2 billion, general insurance companies will now have to recapitalise to N10 billion from N3 billion, while composite insurance companies will now need N18 billion to underwrite businesses, from the previous N5 billion minimum capital.
