Agusto & Co predicts 15 percent growth in GPI for insurance industry

Agusto & Co has predicted a 15 per cent growth in gross premium income (GPI) for the nation’s insurance industry last year.

This is contained in the report of the pan-African credit rating agency yearly review of the insurance industry in Nigeria.

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The 2021 edition of the report covering financial year ended December 31 , 2020, indicated that innovation in product.
According to Agusto & Co., the violence that trailed the #EndSARS protest in October 2020 adversely impacted the Industry in terms of additional claims, which in turn impaired profitability for the 2020 financial year and would moderate the performance of some insurers in 2021. Nonetheless, the riot that trailed the protest emphasized the importance of insurance products, particularly with the absence of a robust social security system in Nigeria.A According to Agusto & Co., the violence/riot that trailed the protest could be a catalyst for insurance uptake, given that the insurance penetration rate has remained less than 1% in Nigeria.

Agusto & Co. expects the on-going recapitalization exercise to change the structure of the Industry. The persistent naira devaluation has reduced the strength of the Industry’s capital since the last recapitalization exercise in 2007. Although some insurers have strengthened their capital base through earnings retention, the ability of most Industry operators to solely underwrite large ticket transactions has dwindled based on the lower value of the capital in USD terms. As at 31 December 2020, the Industry had an estimated capital base of $1 billion, significantly lower than $2.2 billion recorded as at 31 December 2007. As a result, the National Insurance Commission (NAICOM), the apex regulator in the Industry, raised the minimum capital to ₦8 billion (from ₦2 billion), ₦10 billion (from ₦3 billion), ₦18 billion (from ₦5 billion) and ₦20 billion (from ₦10 billion) for life insurers, non-life insurers, composite insurers and reinsurance firms respectively. The recapitalization exercise has suffered some setbacks particularly as the COVID-19 pandemic ravaged the global economy, Nigeria inclusive. Consequently, NAICOM postponed the deadline for the recapitalization exercise which was later stratified into two phases; December 2020 and September 2021. In addition, litigation by some Industry operators and aggrieved shareholders resulted in the postponement of the December 2020 deadline for the first phase of the recapitalization exercise.

Notwithstanding the setbacks, Agusto & Co. believes the recapitalization exercise could be a watershed in the Industry. In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns. The recapitalization exercise has elicited mergers and acquisition transactions in the Industry. Agusto & Co. anticipates an uptick in these transactions as the deadline draws near. The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the Industry. With the gradual rebound of the global economy, more foreign investors are expected in the Industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry.

The entry of new players after the embargo that lasted over a decade was a key point in the Industry. In November 2020, six new operators were licensed in the life, non-life and reinsurance segments of the Industry. The firm anticipates the entry of more players, particularly from existing financial institutions seeking opportunities for diversification of income. Agusto & Co. believes that the new players will intensify competition in the Industry. New insurance products and business practices are also expected from these new players.

Agusto & Co. expects a better performance by the Industry in the near term on the opportunities accruing from the pandemic and the #Endsars is optimized. The gradual increase in the prevailing interest rate will also support the investment income of insurers. It is expected that more innovative product distribution channels will be introduced to reduce the dominance of insurance brokers. Notwithstanding, Agusto & Co. believes the insurance brokers will remain strategic to the Nigerian insurance industry given the wholesale focus of the Industry.

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