Vrolijk: Why Insurance Firms Need Higher Capital

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Mr. Coenraad Vrolijk, is the Regional Chief Executive Officer, Allianz Africa. In this interview, he speaks he speaks about the performance of the Nigerian subsidiary as well as steps taken to meet the new capital requirement. Ebere Nwoji brings the excerpts:

How can you assess the performance of the company and how are you working towards meeting the new capital requirement?

I think we are growing and I am looking at everything in Euro terms and at the end of the day, everything is translated to other currencies. As a group, we report in Euro.
We will continue to grow in Africa at about 11 per cent which is very good and we are happy with that because it is probably one of the highest growth regions in the world.

We are active in about 13 countries in Africa. We will continue to look for expansion opportunities. We will continue to expand in countries we are interested in. Nigeria is not very big for us, but definitely one of the biggest potential countries here with 200 million people and the highest Gross Domestic Product (GDP).
Nigeria and South Africa are the two biggest economies in the continent.
So it is very important to us as a result we have continued to spend on our investment here.

In our board meeting, we saw that we have employed about 19 staff in the last three months which is reflecting in the growth of the company. In terms of agents, when we started Allianz in Nigeria, we had about 70 agents. the number that I saw today is 800 to 900 agents. The exact number keeps changing by day because people keep coming and going. We tried to build 1000 sales people selling Allianz insurance products. So, that will give you a sense of how serious we are. We want to build a franchise here.

Can you tell us how Allianz is going about the industry recapitalisation?

I just want to reiterate and confirm that Allianz will obviously make sure that Allianz in Nigeria conforms to local regulation. We will conform to the regulator’s N18 billion recapitalisation mark for composite companies. The plan is that Allianz will add the money. We don’t want the shareholders. We have 99.6 percent ownership of Allianz in Nigeria. We will add the money I think we will be somewhere over N18 billion. As you know, these things depend on exchange rate. We will add the money before the account closes for 2019.

It is important to be open everywhere. We have been around for 129 years. We are present in 70 countries. There is no single country that we are not known, that includes Nigeria. I know there is so much noise in the market about increase in capital among insurance companies.

Other insurance companies in the country have their own way of doing their increase in capital. From Allianz perspective, we will just add up the capital. In the SEMA zone which is more of French speaking countries, there has been increase in capital from 1billion CFA France to 3 billion CFA France and I know in two years time, it will go up to 5 billion CFA France. In Ghana, which is your next door neighbour, they are also talking about increase in minimum capital requirement. We will fulfill those minimum capital requirements. There is similar conversation in Kenya, but wherever we are, we always conform to local regulation including Nigeria. So, I don’t know why anybody will doubt us.

So I wish to reiterate that as Allianz, we are 100 percent committed to Allianz Nigeria and Nigerian market and we are going to put money to ensure we meet the requirement. So from Allianz perspective, capitalisation is not a big story.

Since after the launch of Allianz brand in Nigeria, will you say you are happy investing in Nigeria?

We are not private equity investors, we are not investing to get our money back in three years time. We are investing because we are staying here. Over time, there is economic profit that comes out of this. We are not investing for immediate return but that is not to say that we don’t run our business for profit, we run our businesses very much for profit, recognising that in a country like Nigeria, 100 per cent of their profit will be retained locally and stays in the balance sheet.

The growth rate here doesn’t justify repatriating any dividend. Once you start moving into a risk-based capital environment, then typically your capital increases as the size of the company increase. So obviously when you are in a very high growth market like Nigeria, then you need to keep pumping capital in to stay conformed with the minimum solvency requirement.

People are expecting that big companies like Allianz will consider acquiring other companies that may not be able to make it, are you looking at that strategy?

The answer is no. We are here, we bought a company here and we are very happy with our team here and we will continue to invest in our company. Our purpose is not to consolidate the market in Nigeria, the difference between a developed market like Germany and the Netherlands and a growth market like Nigeria, Brazil or Vietaem, is that in a developed market, yes there is very little growth, the growth is one per cent so the only way you can go is to consolidate. But here in Nigeria, we are growing on the net premium basis. We are growing at 30, 40 to 50 per cent. So, why should we acquire a company? There is no logic to buying when you are growing that fast.

So, now our intention is to grow the business to turn around capital requirements, it is not logical to buy into those companies, it is not a strategy in the country like Nigeria for now. Maybe, in 20 years time, it will be a strategy but now? No. We will just grow. A good example of the strategy in Nigeria is Egypt. In Egypt, 20 years ago, we started with a very small operation and we have grown to be one of the market leaders, we are the top three market players and we do about $200 million of premium per year in the Egyptian market, which is a good size and we are happy with that. Our ambition here with Allianz Nigeria is the same, it is to grow from where we are today to be a market leader. But this doesn’t happen in one year time Maybe it will happen in five or 10 years’ time, but it will be driven by those running the business. Owolabi and his team’s efforts to grow our agents from 70 to 1000 agents selling Allianz products will help to achieve that.

What is your current capital and how much are you expected to add?

I think we are somewhere around N10 billion today and we will grow to N18 billion as a composite company. The question that often pose challenge to many insurance chief executives in lieu of the new capital they are looking for is this, ‘you as a composite company, when you get this N18 billion capital, what will you do with it? I mean are you going to put it in your vault and be looking at it? You are not a bank, so how do you hope to utilise such a huge capital in other words what I am asking is, is there market for this huge capital? The simple answer is that you have to invest it locally in different ways. Suppose we have 100 assets in Nigeria. Of that 100 assets, between 80 and 90 per cent of it will be sitting in term deposits, government bonds or things like that.

The difference between insurance and banks is, in insurance, unlike banks, people pay you premium upfront, then you hold on to it, and then they make a claim later and then you pay out when they make claims. So insurance companies are always on long term cash, banks are always on short term cash. Banks start with capital, lend out the money and then make a spread on how much they charge people who deposit and if a bank doesn’t have enough deposits, it goes to central bank for external borrowing and then goes out to lend. Insurance companies always go on long term cash. People pay premium upfront and you have to get enough capital, invest it wisely because you don’t know when the claims will come.

In other words, are you saying the new capital requirement is necessary for the industry?

If you are asking the question, why has NAICOM made it N18 billion? I don’t know the exact science behind the N18 billion, N15 billion or N20billion, but there’s a correlation to the risk that you can retain. So, if you have N18 billion on your balance sheet and supposing you are insuring a big building in Aguda and that building is worth N10billion, obviously the sum insured is N10 billion and somebody paid you N100 million premium depending on the rate, this is an illustration. So, all you have on your balance sheet is N100 million and it gets burnt, it means you should pay him N10 billion so that is why you need the capital. You need that capital for that big risk and you need reinsurance for that too as an indication that you will end up retaining a certain percentage of your capital on any risk.