Oyetunji: Terrorism Insurance is the Most Profitable Line of Business


Dr. Femi Oyetunji is the Managing Director of Continental Reinsurance Plc. He spoke with Ebere Nwoji on the place of African Reinsurers in the global market in the face of diverse economic challenges facing the continent, positing that terrorism insurance has remained very profitable. Excerpts

Insurance business generally has been tough because of the economic situation not only in Nigeria but across the globe, how has this affected the reinsurance business generally?
The reinsurance market in Nigeria cannot be exempted from what is happening across the globe. Africa is going through tough times. You know most of African economies depend on commodities.

Commodities prices be it copper, gold, crude oil, have gone down so the economies have been affected and when economies are affected, you have a downturn and the first causality has always been insurance. So we have seen a lot of reduction in interest in insurance. We have seen asset values going down; we have also seen a new risk coming to the forefront. The risk we face now is risk of currency fluctuation. Nigeria has been negatively impacted.

So how have you been coping?
If you look at Continental Re’s strategy in the past five years, it has been that of diversification and that is what someone has been questioning even within Nigeria that what will be success formula for 2016 going forward. It has to be innovation and diversification. For us at Continental Re, we have been fortunate that we have been able to build a diversified platform. It started off in Lagos some 30 years ago.

We have branches in Duala, Cameroon, Abidjan, Coted’voir; we have a subsidiary in Kenya, we have a subsidiary in Botswana and a branch in Tunisia in North Africa .So we have Africa well covered and diversified. We have brought in talents from diaspora to join our operations across Africa.
We have been very quick to react to the needs of our clients. So we are bringing all these together across Africa diversification in innovation and we have been able to see our company grow both in Naira and dollar terms.

There is this problem of non patronage of indigenous insurance firms in Nigeria, we see projects going on in the country but they are not insured in Nigeria. How has that impacted on reinsurance business in Nigeria, are they really patronising you?

No, they are not and in fact, what we see is that some of these risks are now being offered to us from outside Africa. But again, part of the thinking is for us to know where the investments are going and when the investments are going, are we able to be on ground to talk about insurance, and when these deals are going, for money to come in through infrastructure, insurance is tucked in somewhere in small print and we lose out.

But I think there is going to be a concerted effort and the regulatory bodies should support us and government too. But it is not just in Nigeria. We were just talking about one big dam in Botswana financed by funds from China and 75 percent of the insurance is going to China. So we need to know when these bills are being put together so that as insurers and reinsurers, we will be there to ensure that our interests are protected.

How are you coping with terrorism insurance, from which area have you got the biggest claims since the advent of terrorism in Nigeria?
Actually, claims from terrorism have been limited. That has been one of the most profitable lines of business to us. What we found out is that when there is going to be election, enquiries about political violence and terrorism go up. They will take the policies and by and large, we have done well in Africa in the past few years in terms of quality of our elections. So we have not seen what people feared and that means that we have learnt that elections don’t have to end in political violence. Also, terrorism is usually localised and we have seen concerted effort to fight against terrorism both in Nigeria, Kenya, and elsewhere and I do believe that because there has also been international approach to it and so success has been achieved. So in terms of claims, it has not been substantial.

Which line of business gave you the most challenging claims?
That is property and fire. There was a big one in Cameroon last year and claims from flood from Accra Ghana last year; they are the two largest claims we had from West Africa.

How can you rate yourself in African market?
Right now in African market, Continental Re is the largest privately owned Reinsurance company in Africa. Our vision is to be the premier of Africa Reinsurance business. In terms of volume of business, we are number five, that is because as you know, we don’t have any compulsory cession . Reinsurance companies that are bigger than us are government owned and quasi government reinsurance companies, which you know have compulsory cession. We are very proud of our achievement over the past few years and we are putting everything in place to ensure that in the next few years we are on top.

You are the most experience Actuarial Scientist in Nigeria and dearth of Actuarial scientist has remained a big business in Nigeria, what advice do you have as to how to grow young brains in this aspect of insurance?

First of all, we must accept and realise that we need actuaries. When we talk about the biggest insurance market in Africa, you talk about the development of actuarial profession in these markets. South Africa has the largest insurance market, South Africa has by far the largest number of actuaries in Africa. Kenya has the next highest insurance penetration, Kenya has next to highest number of Actuaries after South Africa. These things don’t happen by chance. It is because the regulators decided to fund the training of actuaries. We have no choice in Nigeria than to commit funds to training of actuaries because there is no way insurance can thrive without active involvement of actuaries.

Capital flight has been a big problem in Africa but regulators in Africa often compel insurers to sign treaties with foreign reinsurers, with capital flight being a major challenge, is it still necessary to compel them to do that?

I don’t think they are compelled to do that. It is a global thing. Those overseas companies are international ‘A’ rated players, so everything seems to work against African companies. These companies are ‘A’ rated companies and they have been around for over 200 years. And reinsurance is at infancy stage in Africa, we must realise that Rome was not built in a day and we shouldn’t apply the same requirement for us as the Europeans. They come to our market, so we should go to their market but we can’t because the first thing they look at is your rating. Continental Re has the third best rating in Africa in reinsurance, so I’m not against rating, we are doing well and we are looking forward to getting an upgrading in rating but we cannot come to our own continent and we are waving the same red flag so the regulators will really need to help us. Nigeria is doing well in terms of making sure that local capacities are exhausted before anything is externalised.

Now the regulators will do their own, we have to do ours, we need to build solid institutions, we need to build good balance sheet, we need to be able to demonstrate to the insured that when there is a claim, we will be able to pay; but what again I want to point out is that having ‘A’ rating does not imply the willingness to pay. Ability to pay does not mean willingness to pay. For us African reinsurers, we have the ability and willingness to pay because we are next door to these risks. So we have discussed with the rating agencies and say why don’t you do regional ratings but as far as they are concerned, because of the nature of our business, which is international, they don’t have to segregate. But for us in Continental Re, we know what the rules are, we know what to do to get improved rating but we need the support of the regulator in one form or the other to protect us from uneven playing field we found ourselves now.

The local content in Nigeria, is it working for insurance industry?

Yes, it has been a great success in Nigeria. If it is not there, I can assure you that most of us will not be in business now because the size of balance sheet of some of the big global companies would have placed them in vantage position to write everything that is there and if you also look at the big risks, they are all owned by multinationals with head office in US, China and Europe. So they will be more comfortable dealing with companies from their own base. So we need things like local content, but it is not yet in full session.

At what level are we now in compliance with local content?
If you ask me in oil and gas, I will say we are at 10 percent, other classes like engineering, fire, property, I don’t think we are doing up to 40 percent.