Over the years, the Nigerian insurance industry has been bedeviled with a lot of challenges, that simply refuses to go away. From poor contribution to GDP to poor insurance penetration due to lack of awareness, these problems have made the sector grossly undervalued.
However, with the new recapitalization exercise embarked by the National Insurance Commission (NAICOM), critical observers, at a two day seminar, organised by NAICOM for insurance correspondents in Ogun State, are optimistic that, it will help boost the growth of the sector.
The Director (Policy and Regulations), NAICOM, Mr. Pius Agboola, said there is no doubt, the new recapitalization exercise would be of greater benefit for the insurance sector.
In the area of underwriting more risks, Agboola said with the new recapitalization exercise, insurance companies would be better repositioned to underwrite the risks taken abroad, thereby boosting the growth of the industry.
While rating the top insurance risks, Agboola explained that Nigerian National Petroleum Corporation(NNPC), under its consolidated insurance package, totaling N35.8 trillion ($99.5billion), insured N27.9trillion ($77.5billion) locally and took N7.9 trillion ($22billion) risk sum abroad, while Chevron Nigeria Limited, under its energy package insurance, of which its total risk sum was N5.1trillion, retained N3.7 trillion locally and N1.36trillion abroad.
“Mobil Producing Nigeria Limited, in its energy package/physical damage insurance retained N3.5trillion insurance risks in the local market and took N1.15trillion of its risks offshore.
“Lafarge under its combined property damage/business interruption and public liability) retained N383.4billion risks in Nigeria and ceded N181.4billion of its risks abroad.
“Similarly, Dangote Fertiliser Limited, in its construction/erection in all risk and third party liability, totaling N396billion, retained N237.6 billion locally and ceded N158.4 billion risks abroad.
“Others in the top 10 are Sahara Power (Egbin Power Plc), Yinson Production, StarDeep Water Petroleum Limited, Dangote Refinery Plc, Aviation Refueling and Centre for Energy Research and Trainings affiliated to Ahmadu Bello University (ABU) took some of their risks abroad because of the limited risk retention capacity of local insurers,” he added.
With the new recapitalization exercise, these funds would be retain in the country because underwriters would be financially buoyant to take all the risks, says Agboola.
He said the new capitalization exercise will also enable companies to merge. He said, “Companies that merged in the last capitalization exercise are doing better when compared with companies that did not merge but funded the capitalization through loan.”
Highlighting other benefits of recapitalization, the director said, “The capital base increase through increase in shares subscription would definitely dilute the capital structure of companies with high gearing ratio and this will facilitate further borrowing at a better terms (should there be any need for it).
“One of the reasons while companies prefer raising capital through debt instrument is the cost of raising fund through new shares subscription but good enough, the Commission is already working on palliative measures on the new capital directive.
“The capital increase will also provide funds for business strategy in which some of the underwriters have been approaching the Commission for approval. There is no doubt, consolidation would be of greater benefit for the insurance sector.”
In the same vein, the Deputy Commissioner for Insurance (Technical) National Insurance Commission (NAICOM), Sunday Thomas, who stood for the Commissioner for Insurance at the seminar said the recapitalisation of insurance sector is aimed at repositioning the sector to contribute to the growth of the nation’s economy.
Thomas said the Commission wants to prosecute this recapitalization as one that has never been done before. He said, “We want this to ensure that we retain our businesses and turn the image of our market around.
“The whole idea of this recapitalisation exercise is to have an industry that is strong, that is diligent in prosecution of its assignment, that is highly liquid in terms of being responsible and prompts in claims settlement, that is solid in terms of assets, that is visible in terms of retaining businesses in our environment and at the end of it is able to add value to our economy.
“We have the mandate to ensure that the recapitalization throws up more solid companies. Our hands are open to welcome investors in new companies or existing companies.
“We are engaging other regulators for cooperation for the success of the exercise. Our arms are open to welcome investors either to existing companies or a totally new company.”