…as operators promise good returns
With an estimated N250 billion expected to be injected 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 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.
The National Insurance Commission (NAICOM) had in a circular issued on 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.
The minimum paid-up share capital requirement, NAICOM said, takes effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies are required to fully comply not later than June 30, 2020.
Shareholder groups who have been pessimistic about investing in insurance companies had said there was not much to cheer about from the insurance industry recapitalisation of 2007, having seen a lot of the companies being unable to pay good dividend since then, while a lot of their stocks have also been at par for a long time.
But operators say there is still much to hope for in investing in insurance as the industry holds a lot of untapped potentials that hold long-term prospect for savvy investors.
Daniel Braie, managing director/CEO, Linkage Assurance plc said 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.
“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,” Braie said.
“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,” he said.
The lack of local capacity for certain classes of risks is still a challenge, Braie said, maintaining that increase in capital base of insurers is expected to make the insurance companies stronger to be able to retain more of the businesses and reduce businesses placed abroad.
“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,” he said.
Mayowa Adeduro of Law Union and Rock Insurance plc said the potential of the industry remains an attraction to any informed investor to put money into insurance business.
“The population of Nigeria is over 200 million people with over 70 percent below 50 years age. The industry is about N400 billion Gross Premium Income (GPI) in 2018 but has the potential to double in five years. The infrastructure deficit means there will be increasing spending on capital projects that attracts insurance,” Adeduro said. “Increasing awareness of risk and insurance means more premiums to the industry. Better regulatory and governance environment creates opportunity for growth.”
Adeduro also noted that the existing six compulsory insurance products have potential to generate N1 trillion gross premium. “The local content law, the Cabotage law, the Pension Reform Act and other state enactments like the Lagos State Safety Control Law will all create opportunity for insurance to thrive,” he said.
“As an operator, I foresee improvement in returns on investment after the recapitalisation 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,” he said.
Post recapitalisation, Adeduro said there would be lower participants and higher entry barrier and so expects more collaboration and cooperation among remaining underwriters.
“I see an industry collaborating with banks for facilities, project financing, and investment returns will dramatically improve,” he said.
Tola Adegbayi, executive director, general business at Leadway Assurance Company Limited, believes the potential for insurance is great for 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,” Adegbayi said.
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,” she said.
While Adegbayi believes the potential is huge, she was honest in her position that investment is choice when all variables have been considered because there also the rough side.
“There are no guarantees in business. An investor must look at potentials being presented and make an informed decision on budgeted outcomes and what things are fundamentally required to achieve a targeted level of success within the medium to long term,” Adegbayi said.
“Insurance is not a business for any investor with a short-term focus, in my opinion. With a long-term-focused investor, the potential, looking at the fundamentals of low penetration and essential needs for financial security, is great,” she said.
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