Dipo Olowookere
By Dipo Olowookere
The incessant devaluation of the Naira by the Central Bank of Nigeria (CBN) has not been too helpful to the nation’s insurance sector, a pan-African credit rating agency, Agusto & Co. Limited, has said.
In a report, the foremost business information provider disclosed that since the industry was last recapitalised in 2007, the capital base has reduced in Dollar terms to $1 billion as at December 2020 from $2.2 billion as a result of the devaluation.
In its 2021 insurance industry report, the agency said it expects “the on-going recapitalisation exercise to change the structure of the industry and boost its total value to enable “operators to solely underwrite large ticket transactions.”
The National Insurance Commission (NAICOM), as part of efforts to strengthen the sector, raised the minimum capital for life insurers to N8 billion from N2 billion, non-life insurers to N10 billion from N3 billion, composite insurers to N18 billion from N5 billion and reinsurance insurers to N20 billion from N10 billion.
But due to the COVID-19 disruptions, the exercise has suffered some setbacks, causing the postponement of the implementation date to September 2021.
This is even still disputed in court by some industry operators and aggrieved shareholders, who said the pandemic and #EndSARS protests across Nigeria in October 2020 would make it difficult for companies to beat the deadline.
Nevertheless, Agusto noted that the recapitalisation exercise will increase the capital base of the sector and make the underwriting stronger as it has already spurred mergers and acquisition.
“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,” a summary of the report made available to Business Post said.
Also, Agusto said the entry of new players into the space would intensify competition and the new firms would introduce new products and business practices.
“Agusto expects a better performance by the Industry in the near term if the 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 believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the industry,” the report noted.
It added that for the 2020 fiscal year, Gross Premium Income (GPI) is expected the increase by 15 per cent, while the performance of some insurers will “moderate in 2021.”
