Soaring Nigerian insurance premiums could benefit SA providers

Finance Minister Ngozi Okonjo- Iweala

By Emele Onu

　

NIGERIAN insurance premiums will increase fourfold over the next five years as companies from Old Mutual to Sanlam tap into the accelerating economic growth in Africa’s most populous country.

Premiums are expected to grow to more than 1-trillion naira ($6.3bn) from 260-billion naira last year, according to Fola Daniel, CEO of the Abuja-based National Insurance Commission of Nigeria.

Life insurance is a "huge growth opportunity" in Africa’s biggest oil producer as Nigeria starts enforcing a 2004 rule making coverage compulsory for employers with five or more staff, says the regulator’s head of strategy, Babajide Oniwinde.

That helped attract investment by London-based Old Mutual and South African-based Sanlam as the policing of mandatory motor vehicle and building insurance further increased the market’s appeal. "Many assets used in the country are not insured," says Bismarck Rewane, CEO of Lagos-based investment adviser Financial Derivatives Company.

"South Africa happens to have a very mature insurance market, so it’s not a surprise investors are coming from there."

Old Mutual’s acquisition of a majority stake in Oceanic Life, a unit of Ecobank Transnational Incorporated, was approved in March, while Sanlam bought a minority of FBN Holdings’ life business in 2010.

NSIA Participations SA Holdings, based in Côte d’Ivoire, acquired a majority of ADIC Insurance, a unit of Diamond Bank; and Assur Africa Holding, a group of European development finance institutions, purchased GTAssurance, before changing its name to Mansard Insurance.

Nigeria’s regulator oversaw industry reform after the global financial crisis in 2008-09 brought the banking industry and stock market in the country to the verge of collapse.

Foreign investors can own 100% of Nigerian insurers, while the enforcement of compulsory policies is improving cash flow for firms, Mr Oniwinde says.

"There is a growing middle class and increasing number of high-net-worth individuals who would need insurance for their valuable assets," Mr Oniwinde says.

Premiums rose 12% last year from 233-billion naira in 2011, according to the regulator known as Naicom.

That is far short of developed markets. Switzerland, a country of 8-million people, had insurance premiums 38 times higher than Nigeria last year.

Nigeria’s 59 insurers, led by Leadway Assurance and AIICO Insurance, had total assets of 564-billion naira, according to the regulator.

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", according to Margaret Dawes, executive director for Rest of Africa Operations at Sanlam in Cape Town.

Nigeria’s economy, the continent’s biggest after South Africa, may expand 6.75% next year compared with an estimated 6.5% this year, Finance Minister Ngozi Okonjo-Iweala said on October 11.

"The economy is witnessing a significant level of growth, with a lot of companies springing up and needing insurance," says Sewa Wusu, an analyst at Sterling Capital in Lagos.

"The regulatory environment has also improved, making investors eager to come in to take up the risk," according to Mr Wusu.


Bloomberg