The gradual entry of foreign insurance firms into Nigeria has begun to raise the tempo of an industry formerly plagued by inactivity, reports Festus Akanbi There are strong indications that a combination of the positive demographics and rising household incomes across Africa has begun to change the fortune of the Nigerian insurance industry for better as more foreign institutions continued to make entry into the country. For instance, at the end of November 2014, France’s Axa announced that it had acquired a 77 per cent interest in Mansard Insurance, formerly Assurance, for €198m. According to a report by FBN Capital Research, Axe is not the first foreign entrant into the Nigerian market. It joins Old Mutual (Oceanic Insurance), Sanlam (FBN Life Assurance), NSIA Participations (ADIC Insurance) and Greenoaks Global Holdings (Union Assurance). The research firm noted that Axa has taken the well-trodden path to insurance companies in sub-Saharan Africa, following Swiss Re in Kenya (Apollo Investments) and Prudential in Ghana (Express Life). Foreign Firms Taking PositionsIn a report titled, Insurance, a Strong Flavour for the Year, FBN Capital Research noted that one driver behind the deals in Nigeria has been the decision by the Central Bank of Nigeria (CBN) to reverse universal banking licences, which has forced banks to divest insurance subsidiaries unless they opt for the holding company structure. This, the report said, led both GT Bank and UBN to sell off their insurance companies. “The main driver, however, has been the positive demographics and rising household incomes across Africa, sometimes dressed up as the emergence of the middle class. The new national accounts with a base year of 2010 were helpful in this respect. The same investment rationale can be applied to banks, retail, telecoms, consumer goods manufacturing and advertising,” the report said. It added that “South Africa’s Sanlam views Nigeria as one of its star markets in Africa, noting that the operation achieved breakeven after little more than two years. It cited figures showing that insurance penetration stands at about 10 per cent in South Africa yet less than 2 per cent in Nigeria. It might have added that the authorities are supportive, and we give the example of the requirement for all companies with at least five employees to provide life cover. New Dispensation “Foreign companies can own insurance firms in full, and we can see their becoming the dominant players in the industry within this decade. This is obviously not the case with banking.” The report said the industry regulator, the national insurance commission (NAICOM), reported a total of N258 billion in gross premium income for 2013 and expects N1 trillion for 2018. The Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, has projected N5trillion within 10 years. NAICOM data for 2013 show that the unlisted Leadway achieved the largest gross premium income (N41.8billion). The next four are all quoted on the Nigerian Stock Exchange: AIICO (N22.8billion, Custodian and Allied (N20.5billion), Continental Reinsurance (N13.8billion) and Mansard (N13.6billion). According to figures from the National Insurance Commission, foreign equity holdings have risen to 62.8 per cent in at least seven insurance firms. Many investors are also negotiating with the underwriters on how they can invest in the local market. The Commissioner for Insurance, Mr. Fola Daniel, confirmed that there had been an increase in foreign equities in the country’s insurance industry. “Companies with foreign equities have increased in the insurance sector, generating substantial foreign direct investment,” he said. The Chief Executive Officer, Sanlam, Mr. Heinie Werth, said a major point of attraction for investing in the Nigerian market was the visibility of developmental projects and prospects for growth in the economy. With the vast experience and exposure that Sanlam has in doing insurance business internationally, he said it was bringing in lots of experience to assist the local industry to develop faster. The company, he added, was also adding value because it believed in working through the local people thereby creating employment opportunities in the society. Sanlam, Werth noted, had huge spectrum of products, which it planned to introduce into the country through FBN life. The Managing Director, Niger Insurance Plc, Mr. Kola Adedeji, was quoted as saying that some multinationals were coming into the country to explore the potential in its huge population. “They believe the insurance industry is still very weak. The insurance industry has been around for a very long time, but we are still evolving,” he said. According to him, the coming of the multinationals will bring with it keen competition in the market and engender growth. “They are coming in with better technology, capital, ideas, expertise and products. Those of us that have been in insurance, we need to really brace up. These people are coming in stronger terms,” Adedeji said. Successful Reforms According to a recent report published by THISDAY, some of the reforms introduced by the insurance regulator in the last five years include the Enterprise Risk Management (ERM), corporate governance, risk-based supervision, International Financial Reporting Standards (IFRS), as well as the Market Development and Restructuring Initiative (MDRI) and enforcement of the old law of ‘No Premium No Cover’ policy among other things. Pointing to an evidence of successes of insurance reforms in the country, the Deputy Commissioner for Insurance (Finance and Administration), Mr. George Onekhena, observed that before the enforcement of the no premium no cover foreign investors making enquiries on how to come in as a player in the industry usually ask about the industry’s “gross premium income on cash basis. Investors used to enquire about the gross premium income on cash basis but they don’t ask again because we have resolved this.” Also, the Chairman of NAICOM, Chief Chibudom Nwuche, was quoted as saying that the increase in the number of foreign investors in the industry is an affirmation of successes recorded in the market. According to him, the number of foreign investors in the industry has risen from three five years ago to 10 with many other foreign insurers still making enquiries on how to come into the market. “The commission has historically implemented a number of regulatory and developmental initiatives that have significantly improved the conditions in the Nigerian insurance sector and enhance its attractiveness to investors. A good evidence of this is the increased number of foreign investors that have taken equity interests in insurance institutions in Nigeria. “In specific terms, there are now 10 Nigerian insurance institutions with significant foreign ownership as against just three five years ago and more foreign investors are making enquiries on requirements for participation in the Nigerian insurance sector,” Nwuche said. Such economies, including the Nigerian economy, are assumed to have low or middle per capital incomes and they do not have the level of market efficiency and strict standards in accounting and securities to be at par with developed economies. In the case of Nigeria, many global insurers and financial services groups are already playing actively in the sector. While many of them have invested directly, many others play indirectly using private equity funds. THISDAY report also showed that the leading direct investors include Old Mutual, which acquired a life office and about to acquire a non-life insurer in the country, New India Insurance Company Limited, Sanlam Group and Metropolitan Momentum Holdings that have subsidiaries in the country. There are other several private equity firms in the sector, including Assure Africa in Mansard Insurance, NSIA in ADIC Insurance and International Finance Corporation (IFC) in Leadway Assurance Company Limited among others.
Posted on: Sun, 04 Jan 2015 23:20:14 +0000
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