the Nigerian Insurance Industry still lags behind its African counterparts – with South Africa having a penetration rate of 14.7%, Kenya 2.8%, Ghana 1.1% and Egypt 0.6%, Oscar Oyema, Nigeria Stock Exchange CEO has said in a speech delivered at Insurance Sector Forum.
According to Mr Onyema, We are pleased to host this forum as it is part of our strategic efforts towards supporting the insurance sector, especially at this pivotal time of recapitalization.
I must thank our sponsors; Coronation Merchant Bank and Cordros Capital – for committing resources to host this event. I would also like to thank our distinguished speakers and guests for making out time to be here today.
As you are aware, The National Insurance Commission (NAICOM) recently announced the upward review of the minimum paid-up share capital requirement of insurance and reinsurance companies. The ongoing recapitalization and consolidation exercise is expected to significantly impact the industry and equally present new opportunities in M&A as well as private equity and public offerings.
The Nigerian Insurance industry has grown remarkably over the years, generating a Gross Premium Income (GPI) of â‚¦448.6 billion in 2018, reflecting a 12% growth from 2017. The industry also recorded an increase in its asset base by an estimated sum of â‚¦1.3 trillion as at December 31, 2018, reflecting a 17% Compound Annual Growth Rate over the last three years. According to the National Bureau of Statistics, the Insurance sector recorded a nominal growth rate of 6.69% and a real GDP growth rate of 3.96% in Q3 2019 from 4.48% in Q2 2019 and 1.03% in Q3 2018.
Although this data indicates a positive outlook in the Nigerian insurance industry, the reality and headwinds faced by operators in the sector are quite formidable. Many licensed insurers are largely undercapitalized, thus limiting their ability to take on big ticket in-country risks, as is often required in the oil & gas, marine and aviation sectors.
As at Q3 2019, the insurance sector contributed less than 1% to the Gross Domestic Product (GDP) of Nigeria. 3Having a penetration rate of 0.31% and an insurance density of 6.2%.
The insurance industry presents perhaps the most remarkable investment case of any industry in Nigeria and despite present challenges, it presents numerous opportunities for enhancing the economic fortunes of this country. Foreign investors, recognizing these opportunities have acted accordingly with the likes of AXA, Prudential, Liberty, Swiss Re, SUNU Group, Saham Group, taking strategic positions in the industry.
An estimated capital of â‚¦200billion is expected to be injected into the Nigerian insurance industry post-recapitalization with a 400% increase in the minimum capital required for life, 333% for non-life, 360% for composite and 200% for re-insurance.
While I am optimistic that this directive by the industry regulator would enhance performance, bring about efficiency, innovation and profitability, the industry needs significant support to unleash its growth potential.
At the NSE, we see close parallels between this recapitalisation and that of the banking sector in 2005. The immense growth seen in banking industry in large part can be attributed to successful capital raised through the capital market. The crucial question before us is unravelling how to replicate similar successes within the insurance space and leverage the platform of The Exchange to successfully raise rightsized capital to fuel accelerated growth.
The NSE provides a platform to support listed corporates to meet their business objectives whilst also implementing strategic initiatives that have improved investor confidence. This has allowed listed companies to be positioned on the Exchange as attractive investment opportunities.
We have worked assiduously over the years in ensuring positive impact to the private sector and more importantly our listed companies through policy advocacy and strategy execution efforts. The NSE continues to engage the Federal Government on tax incentives for listed companies and exemption relating to investments in the capital market. We are delighted to note that we have made some strides in our discussions, some of which are evident in the proposed amendments to The Finance Bill 2019, which has now been passed by both Houses of the National Assembly.
With the ongoing recapitalization exercise, we will encourage the Insurance operators by providing a special window to fast-track the approval process, provided the operators have demonstrated high standards of corporate governance, deep social impact, high regulatory compliance and enhanced returns for their shareholders. Post recapitalization, we look forward to having our first insurance company listed on the Premium Board of the NSE.
Once again, I welcome all our guests to this interactive session. I encourage you to participate fully in the discussions, as this would catalyze practical resolutions needed to positively impact the insurance sector and the Nigerian economy at large.
Distinguished ladies and gentlemen, thank you for your attention and anticipated contributions during this forum. I welcome you all and wish you all fruitful deliberations.