Agusto & Co., a Pan-African credit rating agency in Nigeria, has released its 2017 insurance sector outlook.
The “Insurance Industry Report” by the firm unveiled in Lagos recently estimated a gross premium income (GPI) growth of eight per cent for the insurance sector this year.
The firm based its projection on a probable devaluation of the nation’s currency, anticipated increase in infrastructure during the year as well as continued growth in life business in the sector. The firm anticipated that profits in the sector would be upheld by increased investment income due to rising interest rates; but moderated by rising claims payments. It pointed out that the industry’s low penetration rate (GPI as percentage of Gross Domestic Product) of 0.4 per cent, presents huge growth opportunities.
The report was in congruent with the opinion of the federal government’s resolution to drive reform in the sector in order to unlock its inherent but untapped potential as expressed recently by the Minister of Finance, Mrs. Kemi Adeosun who reaffirmed government’s determination in leading the drive to reform the sector and bring about vibrancy that delivers economic growth.
Agusto & Co.’s, focus on the insurance sector is driven by the conviction that a developed and active insurance market would bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, and an improved standard of living.
Speaking during the unveiling of the report, the firm’s Executive Director, Financial Institutions, Mrs. YinkaAdelekan, noted that the report identified significant threats to the growth of the insurance industry while highlighting the growth opportunities inherent in the sector.
“As the largest economy in Africa, the Nigerian insurance industry remains largely underdeveloped. The industry has huge and untapped potentials and the 2017 report highlights some of the opportunities untapped” she enthused.
The report stated that evolving risks such as job losses, cyber risk, among others, offered prospects for the development of new insurance products. It also stated that anticipated government spending in construction could support growth in the industry through bonds, group life, workers’ compensation, among others. According to the report, micro-insurance was also expected to gain traction on the back of a large populace which remains outside the insurance coverage.
In carrying out the research, the credit rating firm examined the financial condition of 45 insurance companies (25 non-life insurers, 10 life insurers, eight composite insurers and two reinsurers), operating in the country, with emphasis on various aspects of their financial performance including; capital adequacy, profitability, investment management, risk retention and exposure, liquidity and cash flow, as well as staff productivity. Agusto & Co. has been tracking the Nigerian insurance industry since 1996.
According to the report, in terms of risk underwriting, the insurance industry underwrote risks of over N300 billion in 2015 through motor, oil and gas, general accidents, fire, marine, aviation, life insurance, among others. The firm estimated a 10 per cent growth in GPI in 2016.
Also, in the area of risk indemnification, the report reflected that at about 28 per cent GPI, over N100 billion generated was estimated to have been paid out as claims.
“This has helped businesses and individuals rebuild and recover from losses quickly. In addition, in terms of financial intermediation, it stated that operators in the sector invested over N137 billion of its premium in the banking industry as placements and deposits in 2015 while it estimates about N178 billion has been placed with the banking sector in 2016. The Insurance sector directly employs 6,400 persons and expended an estimated N29 billion in employee related costs in 2016,” it stated.
Analysts at Agusto & Co. pointed out that developments in the economy as a result of the slide in crude oil prices, which resulted to a downturn in government’s earnings and economic activities, also impacted negatively on the sector.