A report by Agusto&Co, a Pan African Credit Rating Agency and provider of industry research has anticipated a 26.5 per cent growth for the Nigerian insurance sector this year.
The rating agency stated this in its highlights on the 2020 insurance industry report.
While giving a brief on the outlook for 2020, it also stated that there would be a decline in the total number of operators due to the recapitalisation exercise.
Part of the report read, “We envisage a significant reduction in the total number of players by at least 50 per cent. We anticipate a 26.5 per cent growth in total assets between now and 2020.”
On the stable outlook, it stated, “We expect marginal improvement in the near term and significant growth in the medium term on the back of the recapitalisation. However, the fragile macroeconomic environment remains a constraint.”
It stated that the gross premium income of the sector would be driven by life business, particularly annuities.
Oil and gas business line dominated the non-life segment, the report added.
According to the report, the GPI growth in the short-term would be driven by improved operating climate, regulatory support, recapitalisation exercise and increasing awareness of the benefits of insurance.
Inflation adjusted GPI showed a five- year average decline of 1.2 per cent, it stated.
According to the report, the industry’s underwriting profit margins had been impacted by GPI growth, policy pricing, claim payments, reinsurance (inadequate capacity), acquisition and maintenance costs.
It stated that the motor business line remained the most profitable with an underwriting margin of 45.1 per cent, while annuities were least profitable.
Money market securities accounted for over 68 per cent of the industry’s investment portfolio, while approximately 12 per cent was in real estate.
The report said the industry’s improved returns were supported by favourable yields on government securities and portfolio restructuring to reduce low yielding investments.
However, it added that in 2018 and 2019, lower returns were due to the Central Bank of Nigeria’s monetary policies.
It stated that return on investments remained below the yield on 365-day risk free treasury bills (14.7 per cent in 2018 and 13.9 per cent in 2019).
“Return on equity remained lower than return on 365-day treasury certificates of 13.9 per cent and the banking industry’s estimated ROE of 22.9 per cent in 2019,” it stated.
According to the report, the return on equity of Nigeria’s insurance industry was significantly below the cost of equity; less than the average yield on FGN 365-day treasury certificates; and below the average inflation rate.
It stated that this was attributable to lack of scale and a low return on investments which adversely impacted profitability.
This made a lot of equity investors to shun the industry, according to the report.
It also stated that the industry was in dire need of additional capital to increase its underwriting capacity.
