Home Business NSE CEO Oscar Onyema makes investment case for the insurance industry

NSE CEO Oscar Onyema makes investment case for the insurance industry

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L – R shows, Mr Oladeji Babalola, Head, Market Surveillance, The Nigerian Stock Exchange (NSE); Mr Olumide Bolumole, Head, Listing Business Division, NSE; Mr Abbas Abdulkadir, Deputy Director/Head Securities & Investment Services, Securities and Exchange Commission (SEC); Mr Agboola Pius, Director Policy & Regulation, National Insurance Commission (NAICOM); Mr Ayodeji Oyetunde, Partner, Aluko & Oyebode; Mr Eric Idiahi, Partner, Verod Capital Management Limited; and Mr Suru Daniels, Head, Projects & Structured Finance, Coronation Merchant Bank at the NSE Insurance Sector Forum themed: “Recapitalisation – A Panacea for Insurance Industry Growth” which held at The Exchange, Lagos on Tuesday, 10 December 2019.

TUE, DEC 10 2019-theG&BJournal-The Nigerian Stock Exchange (NSE) chief Executive officer, Oscar N. Onyema, OON told stakeholders at the Insurance Sector Forum today that the insurance industry presents perhaps the most remarkable investment case of any industry in Nigeria despite its present challenges.

‘’It presents numerous opportunities for enhancing the economic fortunes of this country,’’ he said at the Forum that was also attended by the sector’s watchdogs.

The sector faces a race to recapitalise after the National Insurance Commission (NAICOM) announced a sweeping upward review of the minimum paid-up share capital requirement of insurance and reinsurance companies.

The new rule mandates life insurance companies to raise their minimum capital base from N2 billion to N8 billion; General Business underwriters from N3 billion to N10 billion; Composite Insurers, from N5 billion to N18 billion, and Reinsurance firms from the current N10 billion to N20 billion.

Perhaps one of the worst performing sectors of the economy, contributing as at Q3 2019, less than 1% to the Gross Domestic Product (GDP) of Nigeria, having a penetration rate of 0.31% and an insurance density of 6.2%, hugely lagging behind its African counterparts – with South Africa having a penetration rate of 14.7%, Kenya 2.8%, Ghana 1.1% and Egypt 0.6%. 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.

Onyema however noted the remarkable growth over the years despite their performance in which the sector generated a Gross Premium Income (GPI) of ₦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 ₦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.

But as industry players begin their recapitalisation and consolidation move, many experts including Onyema, say the exercise is expected to significantly impact the industry and equally present new opportunities in M&A as well as private equity and public offerings.

Onyema pointed to some foreign investors that were quick to recognize these opportunities and acted accordingly. ‘’AXA, Prudential, Liberty, Swiss Re, SUNU Group, Saham Group, have taken strategic positions in the industry.’’

According to him, ‘’an estimated capital of ₦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.’’

Onyema said, ‘’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.’’

‘’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,’’ he adds.

He assured that with the ongoing recapitalization exercise, the NSE 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,’’ he said.

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