The Nigerian insurance industry in 2020, grew its gross premium income by 15 per cent.
This was slightly lower than the 15.55 per cent growth recorded by the industry in 2019. The industry had recorded a 10 per cent growth in 2018, from gross premium of N363 billion in 2017 to N400 billion in 2018.
According to a report on the sector released by the Augsto &Co, a pan African credit rating agency, the industry in the face of the pandemic evolved innovation in product distribution.
It also witnessed some regulatory-backed opportunities such as digitalisation of marine insurance certificates and increasing awareness of the benefits of insurance products.
These, according to the rating agency helped to drive growth of the industry during the business year ended December 31st, 2020.
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.
According to the report, 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 expects the suspended recapitalisation exercise to change the structure of the Industry.
Furthermore, it noted that persistent naira devaluation had reduced the strength of the industry’s capital since the last recapitalisation exercise in 2007.
It estimated that as at December 31, 2020, the industry had an estimated capital base of $1 billion, significantly lower than $2.2 billion recorded as at December 31, 2007.
The agency in the report noted that notwithstanding the setback, the recapitalisation exercise could be a watershed in the industry.
It added that in addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices would 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 report stated.
It further noted that 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 licenced 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.
The agency, in the report, stated that it expects a better performance by the industry in the near term if opportunities accruing from the pandemic and the #Endsars is 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 added.