The nation’s insurance industry is losing over $750 million annually to premium flight as result of shortage of capacity to retain most of the risks emanating from the local market, BusinessDay investigations reveal.
This is moreso in the volatile oil and gas sector, energy and aviation, where barely 30 percent of the risks are retained locally, in spite of opportunities presented by the National Content Development Act.
Nigeria, Africa’s most populous black nation, has total gross premium income as at the end of 2014 put at N302 billion, while total assets and shareholders’ fund stands at N711.4 billion and N352.5 billion respectively. Its insurance penetration is still 0.6 percent and contribution to GPD averages 0.65 percent.
Analysts say a larger proportion of the risks are accommodated through facultative arrangement, and channeled through reinsurance brokers in the international market.
Akin Ogunbiyi, group managing director, Mutual Benefits Insurance plc, who confirmed the capacity shortage, said the Nigerian insurance industry today has the potential to generate N600 billion annually, if operators take advantage of available capacity.
“We have statutory deposits with the CBN. What is the money doing there when we can use it as backup to take bigger ticket risks?”
Ogunbiyi, whose company is currently the lead underwriter for the Nigerian National Petroleum Corporation (NNPC) consolidated accounts for 2015 said most of the premium is not retained in Nigeria because of the low capacity of the market.
“But we can do much better if real industry leaders can come together, take the bull by the horn and take our fate in our hands. We can do it”, Ogunbiyi said.
Corneille Karekezi, managing director, Africa Reinsurance Corporation (Africa Re) said more than 80 percent of the reinsurance risks emanating from Africa are going offshore.
Karekezi said this is as result of lack of capacity to cover large risks like oil and energy, and there is lack of capacity to cover mega projects, even special risks like airlines and aviation.
“As an organisation, we have 10 percent of the total reinsurance market share in Africa and if you combine capacities of all the other reinsurance companies, we may not do up to 25 percent”.
Ken Aghoghovbia, deputy managing director/COO, Africa Re said, “I think the challenge with the industry in Africa has been the lack of skills and capacity.”
Aghoghovbia further said most markets in the continent have very low capital base, which is undermining their capacity to undertake big ticket risks. “Except for countries like Nigeria that have reasonably large capital, many others have very low capital requirement and this accounts for why a lot of the businesses are going offshore. “Retention is largely driven by capital base, so cession is high.”
Sunday Thomas, director-general, Nigerian Insurers Association (NIA) said the issue of under capacity in oil and energy business is being addressed by the industry.
“We are aware of this challenge, and the industry has stepped up action with the recent formation of Energy and Allied Insurance Pool of Nigeria (EAIPN)”, whose objective is to enhance the level of participation of Nigerians and Nigerian companies in the country’s oil, gas and energy industry.
Thomas said the Pool which has Africa Re as its managers, has 48 lines at $250,000, and 40 of the lines have been fully paid for. “We are on course and will surely get there”, Thomas assured.