Tuesday,August 06 2019  12:25PM / by Ebere Nwoji of ThisDay Newspaper / HeaderImage Credit: NAICOM

Nigerian insurance firms may lose72 per cent of the insurance business in the Dangote Oil Refining Company whoseinsured value has been put at $6.8billion to foreign insurers when the companybecomes operational because of their low capital base, THISDAY has learnt.

In addition, they might loseanother $8 billion energy insurance business from energy firms to foreigninsurers due to their current low capital base and lack of underwritingtechnical capacity.

The National Insurance Commission(NAICOM), projected the losses at the weekend at a seminar it organised forjournalists at Ijebu Ode, Ogun State, while justifying reasons for itsdetermination to prosecute the ongoing recapitalisation of insurance companies.

NAICOM’s Director, Policy andRegulation, Mr. Pius Agboola, said the ongoing recapitalisation was to positionthe sector to independently handle big-ticket transactions in Nigeria as wellas to end capital flight and support economic development of the country.

Agboola, while speaking on reasonsfor the ongoing recapitalisation in the sector, said insurance had continued tolose substantial part of the income that was supposed to grow the industry toforeign counterparts due to low capital base.

He added that among the quantum ofbusinesses currently approved-in -principle by the regulator to be taken abroadwere aviation refuelling liability insurance from II Plc (former Mobil OilNigeria Plc) with the sum insured valued at $1,000,000,000.

He expressed regret that of theabove stated amount, the local insurers had the capacity to insure only 10.03per cent, while 89.97 per cent would be ceded to foreign insurers from mainlyEuropean and American markets.

According to him, similarly, thesector is losing another risk valued at $7,010,970, being the sum insured onThird Party Nuclear Liability Insurance  from Centre for Energy Researchand Training (CERT) in which indigenous insurers have capacity to insure only0.05 per cent of the entire business, while 99.95 per cent would be takenabroad.

This is in addition to other fourmajor high-ticket businesses in which the sector is losing over 50 per cent ofthe sum insured to foreign insurers as a result of low capital base and lack oftechnical underwriting capacity.

Agboola said the Combined PropertyDamage /Machinery Breakdown /Liability Terrorism /Political Violence Risk,belonging to Sahara Power (Egbin Power Plc), with the sum insured valued of$3.1 billion would have 53 per cent insured abroad while 46.295 per cent wouldbe insured locally.

He, however, said the NigerianNational Petroleum Corporation (NNPC) retained 78 per cent of its ConsolidatedInsurance package risk valued at N99,585,532,592 as sum insured with localinsurers, while 22 per cent was taken abroad.

Also, Chevron Nigeria Limitedinsures 75 per cent of its Energy Package Risk valued at N14.311billion withindigenous insurers while 25 per cent is taken abroad; just as Mobil ProducingNigeria Limited insures 70 per cent of its Energy package/physical damage andO.E.E valued at $14.098 billion with local insurers while 30 per cent is takenabroad.

Agboola also said Lafarge Hoiciminsured 68.73 per cent of combined property damage/business interruption andpublic liability, valued at $564,882,644,410, as sum insured with local insurerswhile 31.27 percent was taken abroad while Dangote Fertiliser insured 60 percent of its Construction/Erection All Risk and third party liability riskvalued at $1.128 billion with local underwriters.

Considering the quantum of risksceded abroad due mainly to low capital, the Deputy Commissioner for Insurance,Technical, Mr. Sunday Thomas, who represented the Commissioner for Insurance atthe seminar, said the commission would, “prosecute as never before, therecapitalisation process of insurance companies to ensure that the sector ispositioned to support economic development of the country.”

He said even though operatorsmight not have the wherewithal for the recapitalisation of their respectivecompanies, the onus was on the regulator to set the standards that wouldstrengthen the insurance companies’ capacities and place them in a position toundertake insurance businesses.

Giving more insight into the needfor the recapitalisation, Thomas, said: “the process was meant to enable thesector to retain insurance businesses instead of allowing it to go outside thecountry; turn the image of the insurance market, strengthen financial base ofthe companies, increase the sector’s contributions to gross domestic product ofthe country, among other benefits.

“We have the mandate to ensurethat the recapitalisation throws up more solid companies.

“Our hands are open to welcomeinvestors in new companies or existing companies.”

He enumerated the benefits of therecapitalisation to include the need for capital restructuring and improvementin the liquidity position of the insurance underwriters.

According to him, the insuranceindustry’s life cycle is still at an early growth stage, which needed to beexplored.

NAICOM recently fixed August 20,2019 as deadline for operators to submit their recapitalisation plans. 

Also, firms that have decided toadopt mergers and acquisition strategy were directed to perfect such deals 60days to the recapitalisation deadline.

Credit

Thearticle NigerianInsurers May Lose 72% of Dangote Refinery's Risk, Others  firstappeared on Thisdaylive.com on Monday August 5th,2019.

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