Nigeria's great potential to develop insurance sector

AM Best has recently released a report indicating how Nigeria’s substantial oil and gas reserves, its young and increasingly growing population and its position as Africa’s largest economy, gives it great potential to significantly develop its insurance sector.

Moreover, insurance penetration that included a market gross written premium (GWP) as a percentage of gross domestic product (GDP) was indicated to be very low. This indicates that the market has long-term growth opportunities.

The report also indicated that Nigeria’s economy is arguably the largest in Africa; nonetheless, real GDP growth has been somewhat modest, averaging 2.2% over the five years between 2014 and 2018. In 2018, oil and gas production accounted for nearly 90% of exports and approximately half of government revenues.

In 2019, NAICOM issued a revised draft of its proposed regulations. The revisions to capital-setting remained more or less rules-based rather than risk-based, and rectified the minimum capital requirements according to the type of licence that (re)insurers hold.

Also, the minimum capital base for reinsurance companies was increased from N10 billion (USD $27.7 million) to around N20 billion ($55.5 million), and from N3 billion ($8.3 million) to nearly N10 billion ($27.7 million) for general insurance.

However, AM Best noted that foreign direct investment is still low and is directed almost exclusively towards the hydrocarbon sector, which is in turn in charge of supporting the financial services and construction industries.

According to Atlas Magazine, new provisions have been put in place that see that Nigerian insurers and reinsurers are mandated to hold respectively 50% and 60% of the minimum capital.

This will be officially required by 31 December 2020, an extension of the original deadline that had NAICOM put into place.

Only 20 companies out of more than 50 operating in the market have thus far obtained the permission of their shareholders to recapitalize their business.

By 30 September 2021, however, all companies in the market will have to raise 100 billion NGN (257.7 million USD) to abide by the legal requirements.

A great many insurers will have to opt for mergers and acquisitions while others will be required to consider selling assets.

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