Nigeria’s insurance industry is poised to enter a period of consolidation as companies struggle to raise cash to meet new regulatory requirements amid the worst economic contraction in more than two decades.
With markets largely shut for companies to raise equity or debt, takeovers by foreign insurers or mergers between smaller, local firms seeking to grow are among the best ways for underwriters to bolster capital levels so they can take on more risk, said Olorundare Thomas, chief executive officer of the Nigerian Insurance Association, an industry body.
Regulators in Africa’s most populous nation have said they will audit insurers’ books to make sure companies aren’t signing on more business than they’re able to pay out as the National Insurance Commission moves toward risk-based supervision. The Abuja-based authority also said last month that the economy’s downturn means it has to be more vigilant in monitoring the industry’s profitability, liquidity and capital-adequacy ratios. Insurers that don’t want to do deals or can’t raise capital will need to cut back on new business to reduce their risk exposure, the association’s Thomas said.
It would not be the first time the industry has gone through a consolidation. A recapitalization exercise in the wake of the global financial crisis and a meltdown in Nigeria’s banking sector in 2009 cut the number of insurance companies to about 60 from more than 120.
The umbrella body is encouraging members to cater low-income earners so that the industry can account for 3 percent of Nigeria’s gross domestic product by 2020, from about 0.3 percent now, Thomas said.
The insurance industry grew 1.1 percent in the fourth quarter versus 5.1 percent year on year, reflecting a difficult operating year, the National Bureau of Statistics said on Tuesday. The economy shrank for a fourth consecutive quarter in the three months through December and contracted 1.5 percent for the whole year, the agency said.
About 6 percent of Nigeria’s estimated 180 million people had some form of insurance at the end of 2015, compared with about 4 percent in 2013, according to the association’s latest data.
The enforcement of compulsory cover for construction work, car accidents and group insurance for health workers should spur further growth, making it attractive for foreign investors, Thomas said. The industry grew at an average 19 percent a year from 2006 to 2015, with premiums amounting to 313 billion naira ($995 million) at the end of 2015 and total assets of 941 billion naira.
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