Executive Summary 

The global insurance industry rebounded strongly from the pandemic shock in 2021. This improvement was driven by the wave of economic recovery that swept across the globe following the injection of large-scale stimulus by national governments (+$10.0tn) and supranational organizations (+$650.0bn). For 2021, global insurance premium is estimated to expand by 3.4% y/y to US$6.5tn—8.0% higher than the pre-pandemic level—with premiums from AEs and EMs estimated to grow by 3.3% and 3.4% y/y to US$5.3tn and US$1.2tn respectively (Swiss Re Institute). This is driven by the uptick in demand for insurance products (stemming from increased risk awareness due to the pandemic) and upward policy repricing. In 2022, global premium growth is projected to expand to US$6.7tn (up 3.2% y/y) bolstered by the earlier mentioned drivers. However, this growth would be tamed by higher inflationary pressure on consumer and business spending globally.

In ranking terms, the Nigerian insurance sector underperformed significantly, contributing a minuscule 0.02% to world premiums. This ranked the Nigerian insurance sector 81st (previously 71st) out of 88 countries profiled by the Swiss Re Institute in 2021. Nevertheless, the growth rate and contribution of the domestic insurance sector to the GDP in 2021 beat prior year performance. According to the National Bureau of Statistics (NBS), the insurance sector expanded 6.2% y/y in 2021, faster than the overall economic growth of 3.4% y/y. This puts the industry size at ₦267.7bn in real term, representing 0.37% of total GDP compared to 0.36% (or ₦252.0bn) in 2020. Despite this performance, the industry output (measured as GDP) was below pre-pandemic levels by 10.0% indicating an estimated shortfall of ₦29.8bn due to the pandemic-induced strain on businesses and weak insurance penetration in the country.

Although the insurance sector recovered in 2021, the substantial number of claims settled in the year, coupled with higher operating expenses constrained the sector’s profitability. The Nigerian Insurers Association (NIA) established that over ₦11.0bn has been paid by insurance companies in the settlement of claims associated with losses from the EndSARS protest. As of November 2021, 718 claims have been settled on vandalization, 93 on looting, 113 on theft, and 136 on the loss of cash. This is evident by the sharp uptick of 37.8% y/y to ₦172.9bn in total claims paid in 2021 per Afrinvest’s computation. 

In 2022, we expect profit margins to be pressured downward. This is predicated on the deteriorating effect of rising inflation rate (through higher claims particularly in the non-life business) and an increase in HMO policy pricing. Furthermore, we foresee mounting pressure on underwriting margins as the inflationary effect trickles into insurance policy acquisition and maintenance costs thus raising underwriting expenses. Coupled with the rising risk of global recession, we see the insurance sector “Trailing a Rocky Path” to delivering growth over the medium term. On recapitalization, we opined that instead of introducing risk-based capitalisation at this time, NAICOM should assess the impact of the current recapitalisation programme on the sector, to drive a more balanced strategy. Failure to do this could keep investors on the side-line, thereby deteriorating investors’ sentiment towards the sector.

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