Local insurance operators in Nigeria are liable to lose up to 72 percent of the insurance business in the Dangote oil refining company. This is due to the current low capital base and lack of underwriting technical capacity of insurance companies in the country.
As revealed by the Director of Policy and Regulation at the National Insurance Commission (NAICOM), Pius Agboola, Dangote Refinery which has an estimated insured value of $6.8 billion is likely to be taken over by foreign companies when it becomes operational.
Agboola stated that this serves as a justification for NAICOM’s determination to prosecute the ongoing recapitalization of insurance companies as local firms continue to cede substantial income to foreign companies due to low capital base. The ongoing recapitalization is aimed at positioning Nigeria’s insurance industry to independently handle big-ticket transactions in the country as well as end the capital flight, thereby supporting the country’s economic development.
Moreover, local insurers may lose an additional $8 billion energy insurance business from energy companies to foreign insurers. Currently, a host of businesses in the energy sector have been given approval-in-principle by NAICOM to be taken abroad.
One of these is the aviation refuelling liability insurance from 11 Plc. (formerly Mobil Oil Nigeria Plc.) with the sum insured valued at $1 billion. According to Agboola, local insurers had the capacity to underwrite only 10.03 percent of the above-stated amount, while 89.97 percent would be ceded to foreign insurers from Europe and America.
Similarly, the insurance sector is losing another risk valued at around $7 million, being the sum insured on Third Party Nuclear Liability Insurance from the Centre for Energy Research and Training (CERT) in which indigenous insurers have the capacity to underwrite only 0.05 percent of the entire business, while 99.95 percent would be taken abroad.
There are other major high-ticket businesses in which the insurance sector is losing over 50 percent of the sum insured to foreign insurers. The Director said the Combined Property Damage/Machinery Breakdown/Liability Terrorism/Political Violence Risk belonging to Sahara Power (Egbin Power Plc.), with the insured sum valued at $3.1 billion would have 53 percent insured abroad, while around 46 percent would be insured locally.
Secondly, Chevron Nigeria Limited insures 75 percent of its Energy Package Risk valued at more than N14 billion with indigenous insurers, while 25 percent is taken abroad. This is similar to Mobil Producing Nigeria Limited which insures 70 percent of its Energy package/physical damage and O.E.E valued at over $14 billion with local insurers, while 30 percent is taken abroad.
Construction giant Lafarge Holcim insured 68.73 percent of combined property damage/business interruption and public liability, valued at over $564 billion as the sum insured with local insurers, while 31.27 percent was taken abroad. Dangote Fertiliser insured 60 percent of its Construction/Erection All Risk and third-party liability risk valued at $1.128 billion with local underwriters.
On its part, the Nigerian National Petroleum Corporation (NNPC) retained 78 percent of its Consolidated Insurance package risk valued around N99.5 billion as the sum insured with local insurers, while 22 percent was taken abroad.
While the insurance sector regulator had fixed Tuesday, August 20, 2019, as the deadline for operators to submit their recapitalization plans, the Acting Commissioner for Insurance, Sunday Thomas, said the process is meant to enable the sector to retain insurance businesses instead of allowing it to go outside the country.
Among other benefits, the recapitalization will “turn the image of the insurance market, strengthen (the) financial base of the companies, (and) increase the sector’s contributions to (the) gross domestic product of the country,” Thomas said while giving more insight into the need for the recapitalization.
The Acting Commissioner further vowed that NAICOM would “prosecute as never before, the recapitalization process of insurance companies to ensure that the sector is positioned to support the economic development of the country” considering the value of businesses ceded abroad due to low capital. “We have the mandate to ensure that the recapitalization throws up more solid companies. Our hands are open to welcome investors in new companies or existing companies,” he declared.