AM Best has released a report showing how Nigeria’s substantial oil and gas reserves, its young and growing population and its position as Africa’s largest economy, gives it potential to significantly develop its insurance sector.
In addition, insurance penetration which included a market gross written premium (GWP) as a percentage of gross domestic product (GDP) was shown to be extremely low. This is further highlighting that the market has long-term growth opportunities.
The report also showed that Nigeria’s economy is the largest in Africa; however, real GDP growth has been relatively modest, averaging 2.2% over the five years between 2014 and 2018. In 2018, oil and gas production accounted for over 90% of exports and approximately half of government revenues.
In 2019, NAICOM issued a revised version of its proposed regulations. The revisions to capital-setting remained rules-based rather than risk-based, and amended the minimum capital requirements according to the type of licence that (re)insurers hold.
The minimum capital base for reinsurance companies was increased from N10 billion (USD $27.7 million) to N20 billion ($55.5 million), and from N3 billion ($8.3 million) to N10 billion ($27.7 million) for general insurance.
However, AM Best noted that foreign direct investment remains low and is directed almost exclusively towards the hydrocarbon sector, which in turn supports the financial services and construction industries.
According to Atlas Magazine, new provisions have been put in place which see that Nigerian insurers and reinsurers are required to hold respectively 50% and 60% of the minimum capital.
This will be required by 31 December 2020, an extension of the original deadline that NAICOM put into place.
Only 20 companies out of more than 50 operating in the market have obtained the approval of their shareholders to recapitalise their business to date.
By 30 September 2021, all companies in the market will have to raise 100 billion NGN (257.7 million USD) to comply with the legal requirements.
Many insurers will be forced to opt for mergers and acquisitions while others will need to consider selling assets.