Commissioner for Insurance, Mr. Fola Daniel
Punch
Taking advantage of deliberate policies to ensure local content in the oil and gas industry, indigenous insurance firms have hit it big with the Nigerian National Petroleum Corporation, NIKE POPOOLAwrites
Local underwriting firms licensed to carry out non-life business have insured the Nigerian National Petroleum Corporation for a premium of N14.66bn ($73.7m) for the current financial year, investigation has revealed.
Mutual Benefits Assurance Plc, a major player in the oil and gas business, is the lead underwriter for the risk of the corporation for the second year running after its initial contract was automatically renewed. The company had similarly undertaken the task last year and is required to put in place appropriate reinsurance treaty for the risk in the current period.
According to findings by our correspondent, this is the biggest part of the NNPC risk, which will cover the four refineries, drilling, exploration and transportation as well as joint venture interests, but excludes group life insurance cover for the employees.
The premium earned is also the single largest that the underwriters have received over the years.
Although the premium earned from the oil and gas business can be huge, claims can also be enormous when there is a major loss. However, the premium for the NNPC fell slightly from $79.4m in 2014 to $73.7m this year.
Operators told our correspondent that the reduction in premium was not due to the fall in oil prices, but was due to the 7.5 per cent cut that was agreed to by the insurers after negotiations with the corporation.
“We were able to negotiate some reduction on the existing premium. The risks and assets, which are what we are insuring, have not reduced. The fall in oil prices can only affect the profitability of oil companies but not the premium,” one of the underwriters said.
As part of the local content initiative of the Federal Government, the National Insurance Commission officially introduced the guideline for the operation of oil and gas insurance business in the country in 2010.
The guideline, which was issued pursuant to the provisions of the Insurance Act, 2003 and the National Insurance Commission Act, 1997, aims to increase the stake of local underwriters in the business and curb capital flight out of the country.
One of the provisions of the guideline states, “No person or organisation shall transact an insurance or reinsurance business with a foreign insurer or reinsurer in respect of any life, asset, interest or other properties in Nigeria, classified as domestic insurance, unless with a company registered under the Insurance Act, 2003.”
According to the regulation, the insurance broker who wants to do the business must possess a current professional indemnity policy, with a minimum lime of liability of N100m.
It added that no insurance risk in the Nigerian oil and gas industry would be placed overseas without the written approval of the commission, which shall ensure that the local capacity had been fully exhausted.
The guideline defined local capacity as the aggregate capacity of all Nigerian registered insurers and reinsurers, which shall be fully exhausted prior to any application for approval to reinsure any local oil and gas risks overseas.
All registered insurers in the country are eligible to participate in any Nigerian oil and gas insurance business subject to the limitation as stipulated in their operational licences.
According to the guideline, all insurance brokers holding current licences of the commission are eligible to provide brokerage services in oil and gas business.
When contacted for confirmation of the insurance cover, the Group General Manager, Group Public Affairs Division, NNPC, Mr. Ohi Alegbe, referred our correspondent to the corporation’s insurance department.
Officials from the department confirmed that a group of indigenous underwriters led by Mutual Benefits Assurance was handling the insurance cover for the corporation, but pleaded for time to get the details. However, they have been unable to provide the details for about five days.
Recently, the National Insurance Commission inaugurated the technical management board of the Energy and Allied Risks Insurance Pool of Nigeria, comprising representatives of 14 insurance firms.
The 14 underwriters contributed 40 per cent of their subscribed lines totalling $4m to the pool, according to the Nigerian Insurers Association.
The NIA said it was part of efforts of the underwriters to retain capacity in oil and gas underwriting, curb capital flight and grow the local market in energy and allied risk underwriting.
The Commissioner for Insurance, Mr. Fola Daniel, said the benefits of the pool were immense and most international players in the oil and gas business were anxiously waiting for the Nigerian market to make the bold move.
He said NAICOM would support the pool and encourage more insurance companies to subscribe to it.
According to him, the Energy and Allied Insurance Pool of Nigeria presents a great opportunity for the insurance industry to retain capacity and reduce capital flight.
Daniel said, “All my discussions with some players at the Lloyds Market in London point to the fact that Nigeria is not ready to retain capacity and grow the market because the players have refused to establish pools.
“With the inauguration of the technical management board of the pool, underwriters have taken the bold and positive step to curb capital flight and grow local capacity.”
The Chairman of the technical board, Mr. Wole Oshin, expressed optimism that other insurance companies that had expressed interest in becoming members of the pool would be brought on board.
He expressed the hope that with NAICOM’s backing, there would be a structure that would guarantee the continuous funding of the pool and to ensure that it would be adequately patronised.
Oshin said that the board was anticipating a situation where a large proportion of businesses emanating from the country would come through the pool.
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