Nigeria’s Insurance Sector Faces Bright Prospects

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Obinna Chima

The Nigerian insurance industry presents growth opportunities owing to low penetration level of the sector.

In recent times, a number of global insurers have entered into the country to tap into these growth prospects.

Allianz, a German-based insurance company, was the latest foreign entrant into the Nigerian insurance industry. Some of international firms that had entered into the market through acquisition of local insurance companies were Prudential, Old mutual and Sanlam.

This, according to analysts at Lagos-based CSL Stockbrokers Limited, implies that investors are optimistic on the strong growth potential and improving fundamentals of the insurance sector.

“The Nigerian insurance market’s key strength relates to the country’s demographic profile in that the market has an emerging middle class and a young and growing population. The primary developments seen in the industry are on the back of regulatory changes.

“There have been increases in capital requirements aimed at driving industry consolidation through the creation of a smaller number of larger and well capitalised insurers.

“In addition, a “no premium, no cover” rule which ensures that no insurer will grant cover without fully receiving the premium or a premium receipt from the relevant broker was introduced, which has led to improvements in the payment of premiums to insurers, improving their cash flows and liquidity,” CSL Stockbrokers Limited added.

Germany’s Allianz revealed last week that it plans to pay $35 million for 98 per cent stake in Nigerian insurer, Ensure Insurance, in a push for growth in Africa, where many people are uninsured. Foreign insurers are banking on growing premium as the continent develops its infrastructure and a consumer class demands protection from risk.

A Reuters report had disclosed that Allianz said that it would acquire the stake from UK-based holding company Greenoaks Global Holdings.

Ensure Insurance offers life and non-life cover to businesses and retail clients and generated 11 million euros ($13 million) in gross premiums last year.

The Allianz group has operations in 16 African countries and views the Ensure acquisition as an opportunity to tap into Nigeria’s strong demographics and economy.

“The transaction gives Allianz access to the fifth-largest insurance market in Africa and is in line with our strategy to capture long-term growth opportunities on the continent,” said Allianz Africa spokeswoman Bettina Sattler.

“It is also a market with significant entry barriers, which is another reason why this acquisition is a great opportunity for us. Entering Nigeria with a team that knows the market was essential for us.”

Allianz expects the acquisition to close this year and said it intends to retain Ensure’s management team.
The German insurer plans to focus on property and casualty insurance, particularly underwriting industrial and speciality risk in the energy sector as well a large complex risks such as infrastructure.

“In the past two years, we have been quite visible in Nigeria, sharing our risk-management expertise in power, oil and gas, as well as cyber insurance,” Sattler had said.

“Now that we have a company locally … the retail sector is another growth sector for us.”
Allianz followed British insurer Prudential which last month bought a majority stake in Nigeria’s Zenith Life to gain access to the African country’s fast-growing insurance market.

The Allianz Group has more than 86 million retail and corporate customers.