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Nigerian insurance lags behind BRIC countries – Agusto & Co

By on April 4, 2014

The Nigerian insurance industry has remained resilient amidst an increasingly competitive domestic market and heightened regulatory oversight, a report has shown.

But while the report stated that the industry’s Gross Premium Income (GPI) grew by 19 per cent over prior year, it revealed that insurance penetration ratio was still below one per cent and lags behind the BRIC countries with Brazil having 3.65 per cent; Russia at 1.29 per cent; India at 3.82 per cent and China at 2.98 per cent.

This was revealed in a latest report on the sector released by pan-African credit rating agency, Agusto & Co. in Lagos.

The Nigerian insurance industry marked its first financial year since the implementation of International Financial Reporting Standards (IFRS). However, the growth was not achieved without some shortfall.

Insurance operators faced difficulties in implementing the IFRS due to shortage of skilled human capital as well as technology gaps.

As at 15 January 2014, only 44 out of the 59 insurance operators had their 2012 financial accounts approved by NAICOM.

Agusto & Co. estimated that composite underwriters (though only 8 insurers) contributed about 42.9 per cent of GPI, while non-life underwriters (composed of 22 insurers) accounted for 43 per cent of Industry’s GPI.

The market share by composite insurers was supported by firms’ ability to underwrite both general and life insurance business.

“In addition, the Industry witnessed a rise in underwriting activity in the oil and gas and marine insurance business segment driven by the enforcement of regulations in the sectors.

“The insurance sector also witnessed a growth in claim payments and underwriting expenses which hampered underwriting performance,” it explained.

Nevertheless, the report showed that insurers were able to capitalise on favourable interest rate regime in their full year 2012 results to generate investment income.

Agusto & Co. also estimated a 53 per cent increase in the Industry’s investment income for the period ended 31 December 2012, which translated to an average return on investment portfolio of 8.7 per cent.

The report also revealed the Industry’s capitalisation remained good with a solvency margin of 177.1 per cent, significantly higher than the statutory solvency margin of 15 per cent.

Agusto & Co. stressed that the Insurance sector witnessed a level of proactivity amongst operators and regulators alike.

The insurance industry’s apex regulator had in January 2013 enforced the ‘No Premium, No Cover’ policy mandating advance premium receipt prior to issuing insurance coverage.

This policy was widely embraced by the industry which in the past was plagued by high premium receivables.

In addition to increased regulatory oversight in a bid to grow premiums,Agusto & Co. believes that the effective implementation of the micro-insurance and Takaful insurance scheme would deepen insurance penetration.

“The challenges of the Nigerian insurance industry include a dearth in human capital, unethical practices by some insurers and operational inefficiencies.

“Nevertheless, we remain optimistic that the growing presence of foreign insurers and rise in mergers & acquisitions will drive innovation and sanitise the industry,” it stated.

 

 

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