October 6, 2022

Soknacki2014

The Number One Source For Business

Insurance Sector Update: Recapitalisation… Another Dead End?

Thursday, June 10, 2021 / 02:34 PM / by Afrinvest
Research / Header Image Credit: 
Afrinvest 

Proshare Nigeria Pvt. Ltd.

Executive Summary

In our Insurance Sector report 2020 (“Recapitalisation – Launching into the Deep”), we highlighted the global insurance sector
performance in 2019. The sector premiums reached $6.3tn in 2019 after scaling
the $5.0tn mark in 2018 as the non-life segment surpassed forecast and reported
a 3.5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} growth in premiums to $3.4tn while the life segment premiums also
increased 2.2{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} to $2.9bn mainly due to a recovery in China. Sigma research had
expected both non-life and life premiums to contract by 1.0{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} and 1.5{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}
respectively in 2020 similar to that of the Global Financial Crisis (GFC) in
2008 due to the effects of the pandemic on the insurance business.

 

While we cannot ascertain the specifics of global
insurance sector performance in 2020 as Sigma Research – the research
subsidiary of a global insurance firm is yet to release its annual report, we
have gleaned from the International Association of Insurance Supervisors (IAIS)
to obtain insights into performance. This is especially to examine the impact
of the pandemic on the sector.

 

Lower premiums, on the back of reduced economic
activities, coupled with lower investment income pressured the profitability of
insurers in 2020 according to IAIS. Data as of Q2:2020 also showed that
solvency ratios declined on an aggregate level across business lines and
regions resulting from investment losses that accrued from financial market
volatility during the period. Lower profitability increased claim payments, and
declines in asset values as a result of financial market volatility have forced
some insurers to discontinue some pandemic-related insurance policies and
remove clauses that expose insurers to pandemic-related claims in existing
policies in order to contain claims.

 

Coming from the stunted growth recorded since it
contracted 2.9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} in 2019, the Nigerian insurance sector recorded a negative
15.3{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} growth in 2020 according to the National Bureau of Statistics. In terms
of global relevance, the Nigerian insurance sector lagged significantly with a
total contribution to global premiums at 0.03{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} as it ranks 63rd of 88 countries
profiled by Sigma Research in 2019. Compared with Sub-Saharan peers, the
narrative is similar, the sector’s insurance penetration (GPW/GDP) remains poor
at 0.3{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} with South Africa (13.4{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}), Morocco (3.9{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}), and Kenya (2.3{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb}) advancing
in reach. Similarly, the sector grapples with low insurance density (GPW per
capita) of $8.0 compared with South Africa ($803.0), Morocco ($127.0), and
Kenya ($43.0).

 

In December 2020, Nigerian lawmakers in the House of
Representatives directed the regulator to suspend the phased recapitalisation
program, citing the economic hardship in the country as a result of the
pandemic and the need for increased liquidity to boost growth. The lawmakers
also alluded to the #ENDSARS protest by the Nigerian youths and the negative
impact that the destruction of several properties has inflicted on the
insurers. This action creates a Deja vu scenario relatable to 2018 when a class
action by insurance companies’ shareholders resulted in NAICOM canceling a
proposed Tier-based recapitalisation. We advocate that the recapitalisation of
the industry remains crucial to replicate growth similar to the banking sector
experience.

 

Although the pandemic fueled lockdowns and resulted in
lower premiums from some insurance policies as well as refunds from some auto
insurers and escalation of other insured risks, on the bright side, it
necessitated the need for fast-paced adoption of technology and digital
channels in the industry.

 

The Nigeria Insurers’ Association (NIA) reported a
total of 1,661 protest-induced claims as a result of the #EndSars protests, of
which 143 substantiated claims worth
N105.0m have been settled. We believe the settlement of claims is key to
emphasizing the purpose of insurance among the Nigerian populace and
encouraging uptake of insurance policies although this would imply higher costs
and depressed profitability for insurers.

 

We continue to advocate for increased mergers and
acquisitions in the sector to consolidate the influence of companies, deepen
insurance penetration and enhance the retention of heavy-ticket risks in
Nigeria. We also advise increased collaboration with telecommunication
companies and banks as well as micro-insurance to capture value at the retail
end of the population. We have seen some banks (Guaranty, Sterling, and Access
Bank) applying for the Holding Company (HoldCo) licence and upon the expected
resumption of recapitalisation program, we anticipate that these banks would
consider insurance subsidiaries. Already, Access Bank, EcoBank, First Bank, and
Guaranty Trust Bank have Bancassurance relationships and equity stakes in
insurance companies while Zenith Bank, Unity Bank, and Stanbic IBTC Bank have
fully owned insurance subsidiaries. We expect full HoldCo structure frenzy to
boost banks’ investments in the insurance sector and while this may stifle
competition for the industry, it would boost growth and insurance penetration
.

 

Download Full PDF Report

Proshare Nigeria Pvt. Ltd.

Related to Recapitalization

  1. Insurance Recapitalization: The Quest for Efficiency
  2. Is Missing
    the Recapitalisation Deadline a Death Sentence?
  3. Recapitalization:
    Types, Sizes and Shapes of What to Expect
  4. NAICOM
    Announces Minimum Paid Up Capital Policy for Insurance and Reinsurance
    Companies in Nigeria
  5. Insurance
    Sector Update: Recapitalisation… Launching into the Deep
  6. Ekerete Ola
    Gam Ikon To Speak On NAICOM Recapitalization Extension Till 2021 Tomorrow
    on WebTV
  7. NAICOM
    Segments Capital Requirements for Insurance Companies; Extends Deadline to
    Sept 30th 2021
  8. NAICOM
    Mulls Extension of Recapitalization Exercise
  9. Higher
    Capital Requirements Credit-Positive for the Nigerian Insurance Industry
  10. NAICOM
    Issues Update on Recapitalization Plan; Extends Deadline To December 31,
    2020

 

Proshare Nigeria Pvt. Ltd.

Related News

  1. Thinking of an Insurance Policyholder as a CEO
  2. Nigeria’s
    Insurance Industry Needs A Policy Roadmap – Ekerete Ola Gam-Ikon
  3. Could We
    Have Saved UNIC Insurance?
  4. NAICOM
    Issues Public Notice on the Cancellation of Operational Licence of UNIC
    Insurance Plc
  5. For a
    Better Tomorrow, Insure Today
  6. NAICOM
    Corporate Governance Guideline: Beckoning Order
  7. AXA Mansard
    Promotes SMEs in Nigeria; Launches Business Insurance Plan
  8. Why
    Insurance is Still Confusing to Many Nigerians
  9. Will You
    Buy Insurance Today?
  10. The Cost of
    the Protests to the Insurance Industry

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.