Nigeria’s Insurance Sector rife for Consolidation and Growth

By Patrick Atuanya

Nigeria’s insurance sector, with a gross premium to GDP ratio of 0.32%, and an 18% premium growth in 2014, could make a bigger impact on the economy through consolidations.

Nigeria’s insurance sector is approaching a tipping point and is rife for consolidation and growth in the coming months stakeholders in the sector say.

“There are too many companies for the current size of the industry. This means more consolidation will happen,” Matthew Pirnie, Director of Financial Services Ratings, said at the annual Nigerian Ratings and capital markets conference.

“We see the sector with potential for strong growth in the future and being extremely profitable.”

The sector as a whole recorded 18% premium growth in 2014, mostly on the back of compulsory motor vehicle insurance.

While this headline growth seems impressive Nigeria’s insurance sector only had gross premiums equivalent to 0.32% of gross domestic product (GDP) in 2014.

“The issuance regulators need to take a firm decision on consolidation,” said Rashidat Adebisi, Deputy General Manager Fincon and Corporate Services.

There have already been some big-ticket merger transactions in the sector since 2009, with the trend looking set to continue.

Axa SA, in December spent 198 million euros to buy a majority stake in Mansard, Nigeria’s fourth-largest insurer.

In March Paris-based Axa completed the purchase of a 7.2% stake in Lagos based pan-African reinsurer Africa Re for $61 million.

Liberty Holdings Ltd., The South African insurer controlled by Standard Bank Group Ltd., said in January it may conclude a deal in Nigeria soon.

Liberty, South Africa’s fourth-largest insurer said it has more than 1 billion rand ($87 million) to make acquisitions in Africa including Nigeria and plans to raise more funds if needed.

Old Mutual recently acquired a majority stake in Oceanic Life, a unit of Ecobank Transnational Inc., while Sanlam bought a minority of FBN Holdings Plc life business in 2010.

NSIA Participations SA Holdings, based in Ivory Coast, acquired a majority of ADIC Insurance Ltd., a unit of Diamond Bank Plc and Assur Africa Holding, a group of European development finance institutions, purchased GTAssurance Plc, before changing its name to Mansard Insurance Plc.

Foreign investors can now own 100% of Nigerian insurers, while the enforcement of compulsory policies is improving cash flow for companies.

The benefits from international players are improved performance and better products,” said Adebisi.

Nigeria’s 60 insurers, led by Leadway Assurance Plc and AIICO Insurance Plc, had total assets of N564 billion, according to the regulator.

Analysts say further premiums gains will be driven by the anticipated strong growth in the economy, a significantly untapped insurance market and growth in the emerging middle class.

Nigeria’s economy, the continent’s biggest after South Africa, may expand by 4% this year, according to the International Monetary Fund (IMF) estimates.

Nigeria, Africa’s most populous plans to more than triple the value of its insurance market in four years by improving the reputation of the industry, Insurance Commissioner, Daniel Fola said last year.

“Our people don’t trust insurance,” he said. “We’ve done a considerable amount of housekeeping to make sure the companies respect the rules.”

The value of insurance contracts should rise to about N1 trillion ($6.4 billion) in 2017, about 3% of gross domestic product, from N300 billion now, or less than 1% of GDP, he said.

Penetration should increase to 22.5% of the insurable population in four years from 10% currently, Fola said.

Compulsory motor-vehicle insurance, which makes up most contracts now, should remain at about 10% by 2017, while life insurance should constitute 7%, general business insurance 3% and petroleum companies’ insurance 2.5%, he said.

“There are about 3 million insured individuals in the country now which is below par,” said Adebisi.

This article was first published on BusinessDay June 30, 2015 – Pg 24.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.