2007: Marking the rebirth of Nigerian insurance industry

Oladele Ayeleso, Lagos

Fola Daniel, Commissioner
for InsuranceObviously, year 2007 has been a remarkable year in the history of Nigeria insurance industry. The year was characterised majorly, by the continuation of the consolidation and recapitalisation programme of the insurance sub sector of the nation’s economy which officially was scheduled to end by February. However, due to several reasons, the exercise was concluded less than one month ago.

History has it that since the inception of organised insurance business in Nigeria way back in 1921, (although the market and by extension, its practitioners have continued to make conscious efforts to improve on their products and service offering) the government has never shown such an interest in ensuring that the industry grows and live up to the standard of its counterpart around the world. However, the journey to the nation’s insurance rebirth started as far back as 5th September, 2005 , as part of the economic reform agenda of the then president, Olusegun Obasanjo.

The consolidation programme in the insurance industry followed the same programme in the banking sector, mandating all insurance companies to shore up their capital base if they wanted to remain in business. Obviously, that was the major event that consumed the industry for nothing less than 27 months. It will be recalled that the Federal Government, through the former minister of finance, Ngozi Okonjo- Iweala, announced a new capital base for all the categories of insurance businesses in Nigeria . The decision of government was borne out of the fact that the industry has suffered a great set back and with little to add to the gross domestic product of the nation’s economy, owing to the poor capital base. Therefore, the government made it mandatory for all life companies to shore up their capital base to N2 billion, general companies were mandated to increase theirs to N3 billion, while re-insurance companies to N10 billion.

The exercise, which was scheduled to end on 28 February, 2007 was concluded as planned. Out of the 168 insurance and re-insurance companies that set out for the exercise, the National Insurance Commission (NAICOM), on 28 February announced that only 43 general, 26 life and 2 reinsurance companies were able to make it till the end. Ninety seven companies have failed in their bid. By calculation, only about 40 per cent of all insurance and reinsurance companies that existed in Nigeria pre -consolidation were able to recapitalise.

While the industry and the Commission were still basking in the euphoria of the successful exercise that was described perfect by some experts, especially the system adopted by the commission to separate its composite business to Life and General businesses successfully, the exercise met its waterloo when some big shot in the industry raised eyes brow and faulted the whole exercise. This led to the suspension of the commissioner, who was later dismissed, while a panel was set up to review the whole exercise. It will also be recalled that in 2007, following the fate of the erstwhile Commissioner for Insurance and Chief Executive of NAICOM, Emmanuel Chukwulozie, another man was announced in person of Mr. Fola Daniel to hold the forte. The technical committee and the presidential committee were also set up for the purpose of looking into the exercise.

The report of the panel, however, is the thrust on which the industry is currently based on. Recently, the commission, through the minister of finance, announced that only 49 out of the initial 71 companies announced in February were duly certified to carry on with the business of insurance in Nigeria, while the companies that separated their business had been advised to maintain the composite businesses. It was quite interesting to note that shortly after the previous announcement, the insurance stock of the floor of Nigerian Stock Exchange market went up, while it suffered downward trend when NAICOM announced the suspension of the whole exercise, promising a holistic look into it.

Obviously, a major merit of the whole exercise in the insurance sector is the rise in the level of awareness about insurance, as investors that hitherto never bothered to know about insurance are now becoming interested as can be seen in the numbers released on capital market activities both in the primary and secondary markets. Making use of a simple time series analysis to analyse the insurance stocks on the floor of the Nigerian Stock Exchange in the post -recapitalisation era, it will be observed that the effect is of no little measure in the history of the Nigeria insurance industry at large. For instance, by August 2005, 22 insurance companies were listed on The Exchange’s Daily Official List with a total market value of N28.94billion. However, by February 2007, being the deadline for the recapitalisation programme, the number of listed insurance companies increased to 25 with a market value of N91.9 billion, despite that many of them at that time had their prices placed on either technical or full suspension (frozen).

Current statistics indicate that there are 27 insurance companies listed on The Exchange. Obviously, the insurance stock has increase considerably unlike pre consolidation time. So far in 2007, the Council of The Nigerian Stock Exchange had approved the listing of more than four new Insurance companies and two merger applications, after the exercise. In terms of market liquidity, the market has witnessed increased liquidity of insurance stocks only dwarfed by the banking sector attributed to the increased issued shares by the sector. Between January 2000 and September 2005, activities from the secondary market indicated that the insurance sector recorded transaction volume of 3.1 billion valued at N6.21 billion.

The icing on the cake is the large capital gains recorded by most insurance stocks. The statistics on the sector gives Nigerians courage that the industry is poised to improve on its competitive edge in the financial services sector and global insurance markets. As it had been seen in the results being released by the consolidated banks, it is likely to witness enhanced earnings by operators in insurance sector. In 2005, the Central Bank of Nigeria indicated that the sector’s gross premium increased steadily from N37.8 billion in 2002 to N49.3 billion while assets base stood at N171.9 billion. According to projections of NAICOM, gains expected from operators’ increased capacity would see the local market growing its gross premium income to N450 billion by 2010. Also, it is being projected that the insurance sector would earn well over N50 billion from oil and gas business by 2008. The regulator’s projections are based on additional income to the sector arising from increased risk retention capacity that will facilitate the underwriting of big-ticket businesses. Big-ticket risks had, for many years, been completely out of reach of local insurers because of the poor capitalisation profile of the local insurance market.

The local content policy had been introduced in the oil and gas sector, which was designed to encourage the insurance of at least 45 per cent of oil and energy risks by Nigerian insurers and local value added. With the availability of more capital, operators can form strategic alliances and pools to rake in additional premium income from the hitherto elusive sector. Without mincing words, there are indications that insurance businesses in subsequent year, most especially, 2008, being the immediate year after the conclusion of the exercise, will skyrocket. From all indications, many of the successful companies will approach the capital market again to raise more funds.

Mr. Clinton Justus Uranta, the Managing Director, Niger Insurance Plc, said that the industry would definitely seek to raise more funds. He said that the industry would not necessary wait for the government to push it again before it knows what best for it. Speaking on the positive outlook that the industry is wearing, Uranta said, “I will like to say that our industry is now stronger than ever, our industry is looking forward than before and the reason behind all these is very simple, when you have more money in your pocket, you can talk boldly”.