Quite a number of investors are asking salient questions on why they should put in money into insurance companies, particularly in the ongoing recapitalisation of the industry.
Some of these people especially shareholder groups are basing their concerns about their experience with some insurance companies in the area of dividend payout since after the 2007 recapitalisation of the industry. Some of the shareholders had said there was not much to cheer about from the insurance industry recapitalisation of 2007, having seen a lot of the companies been unable to pay good dividend since that time, while a lot of their stocks have also traded at par in a certain time and below par in recent times.
But industry experts believe that the sector post consolidation will have enough resources to attract quality manpower, acquire necessary skills to underwrite big ticket risks, increase retention in the local market, and be able to take advantage of untapped potentials to create shareholder value.
They say that there is still much to hope for in investing in insurance as the industry holds a lot of untapped potentials that hold long term prospect for savvy investors.
Daniel Braie, managing director/CEO, Linkage Assurance Plc said firstly, the Nigerian investment climate is still one of the most attractive in the world in terms of investment returns, so that in itself is an impetus for new investors.
Speaking specifically about the insurance industry, Braie said the full potentials of the industry is yet to be realized when you consider that the insurance penetration ratio is still below one percent.
“Look at it from the point of our population demographics, the insurance industry is a huge market waiting to be unlocked. This should be an attraction for any investor to put in money. In addition, the compulsory insurances if adequately enforced will also offer opportunities for the insurance industry to grow and contribute to the overall growth of the economy.”
According to him, the lack of local capacity for certain classes of risks is still a challenge therefore with increase in capital base of insurers, it is expected that it will make the insurance companies stronger to be able to retain more of the businesses and reduce businesses placed abroad.
“The future of the insurance industry in Nigeria is very bright given the growth opportunities highlighted earlier especially in the retail space. Because of these potentials companies like Prudential of Britain and Allianz of Germany have recently partnered with local companies in addition to those already operating in the country.”
Braie also said “as stated earlier the investment climate is still one of the most attractive in the world and the insurance industry is not an exception. “So both local and foreign investors should be rest assured that returns on their investment will be very favourable.”
Mayowa Adeduro of Law Union and Rock Insurance Plc said the attractions to any informed investor to put money into insurance business is first the potential of the industry.
“The population of Nigeria is over 200 million people with over 70 percent below 50 years age. The industry is about N400 billion GPI in 2018 but has the potential to double that in 5 years. The infrastructure deficit means there will be increasing spending in capital projects that attracts insurance.”
According to Adeduro, increasing awareness of risk and insurance means more premiums to the industry. Better regulatory and governance environment creates opportunity for growth.”
Corroborating Braie, Adeduro also noted that the existing six compulsory insurance products have potential to generate N1 trillion gross premium. “The local content law, the carbotage law, the pension reform Act and other state enactments like the Lagos State Safety Control Law will all creates opportunity for insurance to thrive.”
“As an operator, I foresee improvement in returns on investment after the recapitalization exercise because companies will likely acquire efficient distribution of products model leveraging on technology. Management cost and other /overhead cost will go down significantly including Reinsurance expense as the companies would have acquired higher underwriting and retention capacity.”
“Post recapitalization, there will be lower participants and higher entry barrier, so i expect more collaboration and cooperation among remaining underwriters. I see an industry collaborating with banks for facilities, project financing, and investment returns will dramatically improve, Adeduro stated.
Tola Adegbayi, executive director, General Business at Leadway Assurance Company Limited has this to say, “I would think that the potential for insurance is great for our country. The general banter is about population size and the bulk of this relates to the lower income groups where we have the most vulnerable part of our population, thus speaking to the potential for micro insurance.”
According to Adegbayi, the core for insurance is then the middle income persons, SME business owners who desire financial freedom and security. “Insurance provides that freedom to aspire and the needed security should anything happen; meaning that any investor needs to look at the market potential of this group.”
While Adegbayi believes that the potential is huge, she was honest in her position that investment is choice when all variables have been considered because there also the rough side.
“There are no guarantees in business. An investor must look at potentials being presented and make an informed decision on budgeted outcomes and what things are fundamentally required to achieve a targeted level of success within the medium to long term. Insurance is not a business for any investor with a short term focus, in my opinion. With a long term focused investor, the potential, looking at the fundamentals of low penetration and essential needs for financial security, is great, Adegbayi noted.
The National Insurance Commission (NAICOM) had in a circular issued on Monday May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; General Business from N3 billion to N10 billion; Composite Business from N5 billion to N18 billion; and Reinsurance companies from N10 billion to N20 billion.
According to the Commission, the minimum paid-up share capital requirement shall take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than 30th June 2020.
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