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After a drastic clean-up in 2005, Nigerian insurance companies are poised to cash in on the country’s untapped insurance market potential. Foreign assistance welcome.
There could not be a better time for foreign investors to come into the Nigerian insurance market than now. For the first time in the history of the sector, operators are seeing the need to embrace voluntary mergers and acquisitions that are not driven by regulation.
“International investors have been making enquires that they want to come into the Nigerian market,” says Insurance Commissioner Fola Daniel. “The raw material for insurance to thrive really is the population which we have in abundance, so Nigeria is a good insurance destination.”
Having evolved over the years as agents of business and social stabilization after the recapitalization mandate in 2007, the sector is beginning to respond to the dynamics of economic development and is demonstrating support for the government’s drive to sustain growth of the national economy.
In 2005, the country’s 104 insurance companies, many undercapitalized, were given until February 2007 to raise their capitalization thresholds by more than 1,000%. This led to a spate of mergers and acquisitions but when the dust had settled, 60 stronger companies emerged.
Under the recapitalization directive, life insurance companies were requirements were raised from about $1 million to $13 million; general insurance companies, from $1.3 million to $19 million; and reinsurance, from $3.2 million to $63 million. As a result, the industry capital base exceeded $1.3 billion from a pre-consolidation level of $190 million.
Potentially, Nigeria has the biggest insurance market in Africa, but weaknesses in the industry mean that most of the large businesses are underwritten by foreign companies.
“We have an industry capital base in excess of $3 billion while GPI is about $13 million, this is gross under performance,” Daniel says. “It is time for the industry to run and run we are going to do.”
Between 2000 and 2009, the industry had an average growth rate of almost 24%. Life insurance grew at 21%, and non-life at 18%. In 2009, the industry’s growth peaked with a recorded premium of $1 billion (N179 billion) against $952 million (N150 billion) in 2008, a 16% increase.
The new face of insurance
Regulatory induced changes are expected to boost the insurance sector’s activities going forward.
One such change is the Nigerian Oil and Gas Content Act of 2010. This means that no insurance risk in the petroleum industry can be placed overseas without the approval of National Insurance Commission (NAICOM). The essence is to ensure that Nigerian local capacity would be fully exhausted.
“The Local Content Act is a multi-million dollar business and insurance operators must position themselves for it,” says Olusola Ladipo-Ajayi, Chairman of the Nigerian Insurers Association (NIA).
In August 2010, the Nigerian government called for the adoption of the International Financial Reporting Standards (IFRS) by December 2012.
Similarly, the Central Bank of Nigeria (CBN) has directed banks to divest from all non-banking subsidiaries by May 2012, for which banks are expected to sell about 50 subsidiaries with assets worth $1.2 billion.
So far, two banks have sold off their stake to some foreign investors. Guaranty Trust Bank (GTBank) sold its 68% equity in GT Assurance to Assur Africa Holding, while Diamond Bank sold its 96% stake in Adic Insurance to NSIA Participation, an Ivorian firm.
Other recent actions are expected to lead to the emergence of bigger and stronger players, enhance international competitiveness of local operators and attract foreign direct investment.
Daniel explains that the restructuring and changes are not meant to weaken the insurance industry but to boost its development and predicts the industry will soon measure up to its peers continentally and globally.
By Rosemary Onuoha, Insurance Correspondent, Vanguard newspaper, Lagos
South Africa-based Sanlam Insurance Group entered the Nigerian insurance sector in 2010 via a partnership with FBN Assurance, a subsidiary of Nigeria’s First Bank. Sanlam operates in 10 African countries.
What motivated Sanlam to come to Nigeria?
Population is a big tick in the box. But it’s not just that. The insurance market here has not kept pace with many African markets. So it was an opportunity to take advantage of the insurance sector here which has been completely missed over the last several decades.
What challenges have you faced?
We expected it would be easier to enter the market carrying two prominent brands – First Bank, which is well known here, and Sanlam, which is well known across the rest of Africa. We expected the First Bank brand to help us a lot but we found that we have to stand on our own merits. And we have done that.
What is the competition like?
Everybody is chasing group life business. We compete in that field but we aren’t competing on price; we compete on service, delivery and speed of turn-around. Other areas of business haven’t been touched yet such as having agents go out to sell individual products. We want to be a big part of that.
Would you recommend Nigeria?
There is an enormous opportunity for people to do business here provided they do their homework, know where they are penetrating and have a business partner they trust.