The nation’s insurance industry may lose 72 per cent of the insurance business in the Dangote Oil Refining company.
The company, which has insured value estimated at $6.8 billion, may be overtaken by foreign operators, when it becomes operational as result of low financial capability to underwrite bigger risk in the Nigerian market.
In addition, they might lose another $8 billion energy insurance business from energy companies to foreign insurers due to their current low capital base and lack of underwriting technical capacity.
The National Insurance Commission (NAICOM), which made the observations at the weekend at Ije-Ode, Ogun State, justified reasons for its determination to prosecute the ongoing recapitalisation of insurance companies.
NAICOM’s Director, Policy and Regulation, Pius Agboola, said the ongoing recapitalisation is to position the sector to independently handle big-ticket transactions in Nigeria as well as to end capital flight and support economic development of the country.
Agboola, explained that the reasons for the ongoing recapitalisation in the industry, said insurance had continued to lose substantial part of the income that was supposed to grow the industry to foreign counterparts due to low capital base.
He added that among the quantum of businesses currently approved-in -principle by the regulator to be taken abroad were aviation refueling liability insurance from II Plc (former Mobil Oil Nigeria Plc) with the sum insured valued at $1,000,000,000.
He expressed regret that of the above stated amount, the local insurers had the capacity to insure only 10.03 per cent, while 89.97 per cent would be ceded to foreign insurers from mainly European and American markets.
According to him, similarly, the sector is losing another risk valued at $7,010,970, being the sum insured on Third Party Nuclear Liability Insurance from Centre for Energy Research and Training (CERT) in which indigenous insurers have capacity to insure only 0.05 per cent of the entire business, while 99.95 per cent would be taken abroad.
This is in addition to other four major high-ticket businesses in which the sector is losing over 50 per cent of the sum insured to foreign insurers as a result of low capital base and lack of technical underwriting capacity.
Agboola said the Combined Property Damage/Machinery Breakdown/Liability Terrorism/Political Violence Risk, belonging to Sahara Power (Egbin Power Plc), with the sum insured valued of $3.1 billion would have 53 per cent insured abroad, while 46.295 per cent would be insured locally.
He, however, said the Nigerian National Petroleum Corporation (NNPC) retained 78 per cent of its Consolidated Insurance package risk valued at N99,585,532,592 as sum insured with local insurers, while 22 per cent was taken abroad.
Also, Chevron Nigeria Limited insures 75 per cent of its Energy Package Risk valued at N14.311billion with indigenous insurers while 25 per cent is taken abroad; just as Mobil Producing Nigeria Limited insures 70 per cent of its Energy package/physical damage and O.E.E valued at $14.098 billion with local insurers while 30 per cent is taken abroad.
Agboola also said Lafarge Hoicim insured 68.73 per cent of combined property damage/business interruption and public liability, valued at $564,882,644,410, as sum insured with local insurers while 31.27 percent was taken abroad while Dangote Fertiliser insured 60 per cent of its Construction/Erection All Risk and third party liability risk valued at $1.128 billion with local underwriters.
Considering the quantum of risks ceded abroad due mainly to low capital, the Acting Commissioner for Insurance, Sunday Thomas, said the commission would, “prosecute as never before, the recapitalisation process of insurance companies to ensure that the sector is positioned to support economic development of the country.”
He said even though operators might not have the wherewithal for the recapitalisation of their respective companies, the onus was on the regulator to set the standards that would strengthen the insurance companies’ capacities and place them in a position to undertake insurance businesses.
Giving more insight into the need for the recapitalisation, Thomas, said: “The process is to enable the sector to retain insurance businesses instead of allowing it to go outside the country; turn the image of the insurance market, strengthen financial base of the companies, increase the sector’s contributions to gross domestic product of the country, among other benefits.
“We have the mandate to ensure that the recapitalisation throws up more solid companies. Our hands are open to welcome investors in new companies or existing companies.”
He enumerated the benefits of the recapitalisation to include the need for capital restructuring and improvement in the liquidity position of the insurance underwriters.
According to him, the insurance industry’s life cycle is still at an early growth stage, which needed to be explored.
NAICOM recently fixed August 20, 2019 as deadline for operators to submit their recapitalisation plans.
Also, firms that have decided to adopt mergers and acquisition strategy were directed to perfect such deals 60 days to the recapitalisation deadline.