Operators in the Nigerian insurance industry recorded gross premium income (GPI) of N520.1 billion in one year, a report by Agusto & Co. Limited, has shown.
Agusto & Co. Limited, the Pan-African credit rating agency and the foremost business information provider, stated this in its newly released 2022 insurance industry report.
In the report, released at the weekend and titled: The Nigerian Insurance Industry – More Resilient Than Expected, Despite Headwinds, the research firm said the earnings covered financial year ended December 31, 2020.
This further indicated that growth was muted by the outbreak of the COVID-19 pandemic.
The lockdown, following the COVID-19 pandemic, negatively impacted insurance products distribution, especially with the inter-state travel bans restricting the movement of people and goods.
Simultaneously, in the financial year 2020, the industry paid out net claims of circa N196 billion, up by 20 per cent year-on-year (representing 37.6 per cent of GPI) and worsened by the violence that trailed the #EndSARS protest in October 2020.
Consequently, modest profitability indices are expected in financial year 2021 and to a lesser extent in financially year 2022 due to higher claims, an aftermath of the protests as well as inflationary pressures on the industry.
Nevertheless, Agusto & Co. notes that the violence that trailed the #EndSARS protest also emphasised the importance of insurance products, particularly with the absence of a robust social security system in Nigeria.
The violence that trailed the protest could be a catalyst for insurance uptake in the near term, given that the insurance penetration rate has remained less than one per cent in Nigeria.
Agusto & Co. also anticipates a resumption of the recapitalisation in the short term. The rating agency notes that the persistent naira devaluation has reduced the financial strength of the industry’s capital since the last recapitalisation in 2007.
The report explains that although some insurers have strengthened their capital base through earnings retention, the ability of most industry operators to solely underwrite large ticket transactions has dwindled, based on the lower value of capital in United States (U.S) dollar terms.
“Therefore, Agusto & Co. believes that the recapitalisation exercise could be a watershed in the industry. In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio as insurers strive to generate adequate returns,” it said.
Overall, Agusto & Co. expects a modest performance by the industry in the near term. Performance would be supported by enhanced bancassurance, which would allow insurance operators to leverage the more structured data and client base of the banking industry to deepen their reach in the retail market.
“There are also new insurance products, particularly for the agriculture sector that have come on stream to boost GPI. Furthermore, the sharp switch to virtual channels, one of the many rapid changes witnessed during the pandemic-induced lockdowns in 2020 should be sustained in the near term,” the report said.
“With improved digitisation, insurance companies can advertise and sell products via various digital platforms and partnership with Fintechs will also galvanise growth. However, digitisation presupposes better management of cyber risks,” it added.