Harnessing Gains Of Insurance ConsolidationHarnessing Gains Of Insurance ConsolidationStories By WILSON ASEKOMHE
Ten months into the consolidation exercise, stakeholders in the insurance sub-sector of the economy appear to be satisfied with the fast pace at which the industry is growing.
National Mirror investigations show that the average growth rate of most insurance companies in terms of gross premium and profit is almost 100 percent compared to what it was before now.
For instance, half year report of insurance companies seems to tell the story. For instance, Nigeria's first insurance company, the Royal Exchange announced an underwriting profit of N847million in its recent Annual General Meeting. This was against the N462million it recorded in 2006.
Also, Sovereign Trust Insurance Plc recently recorded a written gross premium of N2.5billion in 2007 as against N1.4billion recorded in the previous year. The picture is the same among a cross section of insurance companies surveyed.
Of great significance too is the impressive growth of insurance assets which have risen for above N165billion as at June 2008.
On gross premium still, Oasis Insurance gross premium rose by 25percent from N1.7billion in 2007 to N2.3billion in 2008.
Investment and Allied Insurance grew its gross premium by 73 percent from N354.2million in half of 2007 to N611.93million in first half of 2008
Also, Prestige Assurance's gross premium, grow from N.05billion in 2007 to N1.75billion in half of 2008.
Industry watchers believe that the recapitalization has positioned Nigerian insurance sector in a position that would sustain it as the second most active sector.
Shareholders’ fund of most insurance companies have also risen beyond earlier predictions.
Leaving in this class is the flagship of the Nigerian insurance, NICON which was turned around from its near moribund state by Havard trained businessman and publisher of National Mirror, Barrister Jimoh Ibrahim.
While most insurance companies are still within or a little above industry recommended minimum capital of N2billion for Life, N3billion for General and N10billion for Reinsurance, NICON and Nigeria Reinsurance alone have over N25billion.
NICON'S records of claims payment in the part one year has been largely applauded by stakeholders.
According to the Managing Director of Equity Assurance, Mr. I. A. Balogun, the insurance industry has witnessed significant growth since the recapitalisation. While market capitalisation rose from N25.9billion in 2006 to N20billion in 2007, the volume of business written also grew from N82billion to N177billion within the same period under reviewed.
The insurance sector has also been a toast of investors at the Nigerian Stock Exchange (NSE).
From the reports on the daily activities of the stock market, insurance stocks have been leading in terms of volume traded on the floor of exchange.
According to the Commissioner for Insurance Mr. Fola Daniel, the volume of insurance made in 2006 was only 16.15. However, it grew to 3,369.73 in 2007 and 17,343.21 in 1st quarter of 2008.
This impressive performance is against the performance of the banking sub-sector which before now was leading to buttress this fact, the banking sub-sector recorded a volume of 1,071.55 in 2006, 14,179.87 in 2007 and dropping to 11,756.94 in the 1st half of 2008.
This performance has also led to what seems like a rush to invest in the sector. So far, over seven insurance companies have been acquired as subsidiaries of banks.
Analysts posit that if this trend is sustained, the Nigerian insurance industry will drive the nation’s economy as obtainable in the developed world. In USA and Britain for instance, the stock or capital assets held by the insurance industry is far greater than the capital held by the banking system.
This growing tempo is likely to increase. The NAICOM boss, said: “It is on record today that many insurance companies have increased their nominal and paid up capital without any prompting from the authorities.” He added that “the insurance industry today has increased its capacity to underwrite and retain more businesses in oil and gas sector, Marine (Cabotage Act) and Aviation risks”.
For Prince Feyisayo Soyewo of Prestige Insurance Brokers, the recapitalization exercise has brought many merits into the industry. Some of these merits mentioned by him include the ability to underwrite more risks, hire and pay best professionals, expand branches and having more fund to develop Information Communication Technology and build enlightenment campaign.
He therefore recommended that the recapitalisation should be a continuous one in the industry with more mergers and acquisition recommended.
Earlier in the month, insurance stocks accounted for 43percent of aggregate turnover volume of 1.4billion shares. This aggregate turnover stood at 3.25billion.
Also of importance is that the insurance industry has been attracting an increasing inflow of local and foreign investments.
Analysts at Sterling Capital Markets posit that foreign strategic investors have a likely advantage of impacting positive in the industry's operational performance and corporate governance.
Besides, industry watchers behave that the local content policy in the oil and gas insurance, would be a money spinner for the industry. They argued that the enormous amount of money which has been leaking steadily through capital flight would now be plugged inward.
The gains are also touted to empower the implementation of the compulsory insurance provisions which inadequate fund has partly slowed down in the past.
Analysts predict that by the 2020, the industry would achieve a N12trillion premium base. This is predicated on the fact that the 140million population and the growing awareness may snowball into an added strength for the industry.
However, notwithstanding these gains, analysts believe that the industry is still growing slowly compared to what in the developed economics. It is believe that the rate of insurance penetration into the rural communities is still very low.
The industry is also characterised by professional indiscipline, ignorance, illiteracy and other vices.
These and many other disadvantages make the sector to contribute only one percent to the Gross Domestic Products (GPD) in 2006.
Managing Director of Linkage Assurance, Mr. Gus Wiggle said: “Insurance market remains largely underpenetrated when compared with what obtains elsewhere, even in the West African sub-region.
He said out of about 20 million people in formal and informal employment less than one million people have something to do with insurance.
Another area which poses a serious challenge to the gains of insurance growth is the issue of unpaid premium. Analysts said in 2007, the increasing quantium of unpaid premium, the ever increasing claims portfolio and the very high levels of competition have was of great great concern to the industry.
To demonstrate this, Nigeria's insurance penetration percentage has been put at 0.06 percent compared to 4.8percent in India 2.7 percent in China 16percent in South Africa 8 percent in Namibia and 2.8 percent in Brazil.
The general consensus therefore is that if these gains of the insurance sector must be sustained, the militating challenges must be tackled squarely. The human capital too must be given a comprehensive focus, they asserted.
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