The initial apprehension that enveloped the insurance industry when the ongoing recapitalization exercise was pronounced on 20th May 2019 is gradually settling down, with a number of the companies becoming clearer with funding sources.
While the foreign insurers have almost cleared their tables on the funding sources, the mid to large size local insurers were tidying up plans with strategic investors and well as funds from assets restructuring.
Business Day investigations also show that the top size insurers may recapitalise and also take up small companies, which analysts say will bring a lot of stability in the market without many casualties from the exercise.
An industry sources said the exercise may end up not seeing causalities in terms of license seizure as almost every company is doing something to raise reasonable funds, even if there will be mergers at the end of the day.
One important point here is that a lot of investors are showing interest in insurance industry based on the perceived potential for growth given the low level of insurance penetration in the country.
Insurance penetration to the GDP in Nigeria is put at 0.4 percent in a population of over 190 million people, underscoring the untapped opportunities open to investment in the sector.
With an estimated N200 billion expected into the Nigerian insurance industry after the ongoing recapitalisation by underwriters, the sector is hopeful to emerge stronger, contribute reasonably to the economy and also able to offer good returns to investors.
Industry experts believe that the sector post consolidation will have enough resources to attract quality manpower, acquire necessary skills to underwrite big ticket risks, increase retention in the local market, and be able to take advantage of untapped potentials to create shareholder value.
Read also: Allianz Nigeria settles motor insurance claims in 60 minutes
The National Insurance Commission (NAICOM) had in a circular issued on Monday May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; General Business from N3 billion to N10 billion; Composite Business from N5 billion to N18 billion; and Reinsurance companies from N10 billion to N20 billion.
According to the Commission, the minimum paid-up share capital requirement shall take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than 30th June 2020.
Industry operators say there is still much to hope for in investing in insurance as the industry holds a lot of untapped potentials in the long term for savvy investors.
Daniel Braie, managing director/CEO, Linkage Assurance Plc said firstly, the Nigerian investment climate is still one of the most attractive in the world in terms of investment returns, so that in itself is an impetus for new investors.
Speaking specifically about the insurance industry, Braie said the full potential of the industry is yet to be realized when you consider that the insurance penetration ratio is still below one percent.
“Look at it from the point of our population demographics, the insurance industry is a huge market waiting to be unlocked. This should be an attraction for any investor to put in money. In addition, the compulsory insurances if adequately enforced will also offer opportunities for the insurance industry to grow and contribute to the overall growth of the economy.”
According to him, the lack of local capacity for certain classes of risks is still a challenge therefore with increase in capital base of insurers, it is expected that it will make the insurance companies stronger to be able to retain more of the businesses and reduce businesses placed abroad.
“The future of the insurance industry in Nigeria is very bright given the growth opportunities highlighted earlier especially in the retail space. Because of these potentials companies like Prudential of Britain and Allianz of Germany have recently partnered with local companies in addition to those already operating in the country.”
Braie also said “as stated earlier, the investment climate is still one of the most attractive in the world and the insurance industry is not an exception. “So both local and foreign investors should be rest assured that returns on their investment will be very favourable.”
Mayowa Adeduro, managing director/CEO, Law Union and Rock Insurance Plc said the attractions to any informed investor to put money into insurance business is first the potential of the industry.
Read also: NAICOM wants insurance brokers increase presence at the grass root for better penetration
“The population of Nigeria is over 200 million people with over 70 percent below 50 years age. The industry is about N400 billion GPI in 2018 but has the potential to double that in 5 years. The infrastructure deficit means there will be increasing spending in capital projects that attracts insurance.”
According to Adeduro, increasing awareness of risk and insurance means more premiums to the industry. Better regulatory and governance environment creates opportunity for growth.”
Corroborating Braie, Adeduro also noted that the existing six compulsory insurance products have potential to generate N1 trillion gross premium. “The local content law, the carbotage law, the pension reform Act and other state enactments like the Lagos State Safety Control Law will all creates opportunity for insurance to thrive.”
“As an operator, I foresee improvement in returns on investment after the recapitalization exercise because companies will likely acquire efficient distribution of products model leveraging on technology. Management cost and other /overhead cost will go down significantly including Reinsurance expense as the companies would have acquired higher underwriting and retention capacity.”
“Post recapitalization, there will be lower participants and higher entry barrier, so i expect more collaboration and cooperation among remaining underwriters. I see an industry collaborating with banks for facilities, project financing, and investment returns will dramatically improve, Adeduro stated.
Tola Adegbayi, executive director, General Business at Leadway Assurance Company Limited has this to say, “I would think that the potential for insurance is great for our country. The general banter is about population size and the bulk of this relates to the lower income groups where we have the most vulnerable part of our population, thus speaking to the potential for micro insurance.”
According to Adegbayi, the core for insurance is then the middle income persons, SME business owners who desire financial freedom and security. “Insurance provides that freedom to aspire and the needed security should anything happen; meaning that any investor needs to look at the market potential of this group.”
