The Nigerian insurance industry introduced some innovations in distribution in the face of the COVID-19 pandemic. These helped to drive industry growth during 2020, according to a report on the sector released by the credit rating agency Agusto & Co.
It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers.
“Notwithstanding, Agusto believes insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the Industry.”
The insurance sector also witnessed some regulatory-backed opportunities last year such as digitalisation of marine insurance certificates and increased awareness of the benefits of insurance, reported This Day quoting the report.
In 2020, Nigerian insurers grew their combined gross premium income by 15%, slightly lower than the 15.55% recorded by the industry in 2019. The latest available annual report by the National Insurance Commission states that the insurance market in 2018 expanded at about 14.46% , recording a gross premium income of about NGN426bn ($1.04bn) as against NGN372bn in 2017.
Commenting further on the 2020 financial results of the insurance sector, Agusto says that the violence in the #EndSARS protests in October 2020, hit the industry which saw additional claims, that in turn impaired profitability and would moderate the performance of some insurers in 2021.
Nonetheless, the riots highlighted the importance of insurance, particularly in the absence of a robust social security system in Nigeria.
Capital
Agusto expects the insurers’ recapitalisation exercise, currently suspended, would change the structure of the Industry. The persistent naira devaluation has reduced the strength of capital in the insurance industry since the last recapitalisation exercise in 2007. It is estimated that as at 31 December 2020, the industry had an estimated capital base of $1bn, significantly lower than $2.2bn recorded as at 31 December 2007.
Agusto says that the recapitalisation exercise could be a watershed in the industry in that, in addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices would be supported by a larger investment portfolio driven by the need to generate adequate returns.
Recapitalisation requirements have also prompted mergers and acquisition transactions in the Industry. Agusto & Co. anticipates an uptick in these transactions.
“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.
New players
“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 $ terms), despite the undisputed opportunities in the Nigerian insurance industry,” the report stated.
The rating agency notes too 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 licensed in the life, non-life and reinsurance segments of the industry.
More new players are expected in the industry, particularly from existing financial institutions seeking opportunities to diversify income. Agusto said, “New insurance products and business practices are also expected from these new players.”
Source MEIR
