Report Foresees Stronger Insurance Sector after Recapitalisation

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Goddy Egene

A new report has revealed that the ongoing recapitalisation of the Nigerian insurance industry will improve their capacity to underwrite risks, generate adequate returns on investments and make better contributions to the growth of the nation’s economy.

Agusto & Co. Limited, the pan-African credit rating agency and the foremost business information provider, stated this in its 2021 Insurance Industry Report, released at the weekend. The recapitalisation of the insurance companies, announced by the National Insurance Commission (NAICOM), is expected to be concluded by September.

According to Agusto & Co., the recapitalisation could be a watershed in the industry.

It stated: “In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns. The recapitalisation exercise has elicited mergers and acquisition transactions in the Industry.

“Agusto & Co. anticipates an uptick in these transactions as the deadline draws near. The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the industry. With the gradual rebound of the global economy, more foreign investors are expected in the industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry,” the rating agency said.

Agusto & Co said the entry of new players after the embargo that lasted over a decade was a key point in the industry.

“In November 2020, six new operators were licensed in the life, non-life and reinsurance segments of the industry. The firm anticipates the entry of more players, particularly from existing financial institutions seeking opportunities for diversification of income. Agusto &Co. believes that the new players will intensify competition in the industry. New insurance products and business practices are also expected from these new players,” it added.

On the performance of the sector, Agusto & Co. estimated a 15 per cent growth in gross premium income (GPI) for the financial year ended 31 December 2020.

“Innovation in product distribution induced by the pandemic, regulatory-backed opportunities, including the digitisation of marine insurance certificates and increasing awareness of the benefits of insurance products were some of the GPI growth drivers during the 2020 financial year,” it said.

According to Agusto & Co., the violence that trailed the #EndSARS protest in October 2020 adversely impacted the industry in terms of additional claims, which in turn impaired profitability for the 2020 financial year and would moderate the performance of some insurers in 2021.

“Nonetheless, the riot that trailed the protest emphasised the importance of insurance products, particularly with the absence of a robust social security system in Nigeria. The violence/riot that trailed the protest could be a catalyst for insurance uptake, given that the insurance penetration rate has remained less than one per cent in Nigeria,” it said.

Agusto & Co. said it expected a better performance by the industry in the near term if the opportunities accruing from the pandemic and the #Endsars are optimised.

“The gradual increase in the prevailing interest rate will also support the investment income of insurers. It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers. Notwithstanding, Agusto & Co. believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the industry,” it said.