The Nation Newspaper

Tag: Insurers

  • Insurers urged to look beyond govt’s assets

    INSURERS have been urged to look beyond government’s premiums and focus on the retail end of the market.

    The Managing Director, Riskguard-Africa Nigeria Limited, Mr Yemi Soladoye, stated this in Lagos.

    This is the only way insurance industry can grow and unhealthy competition reduced.

    He said the concentration of operators on government‘s assets has created problems in the industry. He listed some of the problems to include rate cutting, undermining the industry operating rules and guidelines thereby creating friction among operators.

    He said the operators were engaging in unhealthy competition because they boxed themselves into a narrow distribution outlet, which is the brokerage market, stressing that in any situation; price becomes the only competitive strategy, when people are not adding value to their business.

    He said: “That the clients are asking for reduced price every year, and the brokers are doing the same, it is a manifestation of the fact that they are saying that they have not seen any competitive strategy. The insurance companies concentrate on premium growth, as against market expansion. The future and the solidity of the operators can only come from market expansion, he said.

    The Riskguard chief also said: “All the operators want is to ensure that their premium for this year is higher than what it was last year, and they are ready to do anything to achieve that. If their market position last year was number six and they move to number five this year, their board would laud their effort, not minding what they did to get there.”

    Soladoye said companies’ cost of doing business is indeed very high while the claims ratio is quite low.

    “These are pointers to the fact that insurance companies need something new and better. The issue of unhealthy competition will be getting worse, until they look for better, cost effective and non volatile distribution channels”, he said.

    He said by retail operations he means companies adopting strategies such as Bankassurance which is having collaboration with banks is a retail channel. It also means engaging in strategic alliances with organisations, like Shoprite, Megaplaza and others. Collaborating with cooperative societies and more. It is so wide but until they adopt it, the market cannot expand, he said.

    Soladoye said the adoption of retail marketing should be made compulsory, stressing that operators are already feeling the bite of the narrow distribution outlet they are using at the moment.

    He said most of the problems operators face – high cost of doing business, premium reduction, unhealthy competition, are all manifestations of the fact that they are using narrow distribution method. He added that if they have an alternative, they would do business on their own terms, but when they do not have, they have to achieve whatever anybody tells them.

    He noted that the operators are not creating alternative distribution outlets to expand their operations, adding that the industry can never grow when the operators scramble for the few businesses available.

    “I think what they need to do is to go back to the drawing board to re-examine their operational strategies. Each company needs to sit and draw strategy on how to develop their business and adopt retail marketing strategy. When this is done, issues of unhealthy competition, premium reduction and others will stop,” he added.

  • What premium for insurers?

     Insurance stocks have generally stagnated at their nominal values. With a negative year-to-date return of 18.60 per cent, insurance subsector still shows the hangovers of the stock market recession. What will bring back premiums to insurance base values? Taofik Salako reports on the underlining pricing trends in stock market’s largest subgroup

     

    The Nigerian stock market opens today with a year-to-date return of 28.66 per cent, indicating the generally bullish pricing trend that has characterised equity valuations so far this year. Substantial positive returns by other sectoral indices underscore widespread capital gains, which cumulated into the average overall return. Insurance sector index however opens today with double-digit negative return of 18.60 per cent, tagging along with the beleaguered oil and gas sector, which opens with -30.81 per cent.

    Out of the 32 insurance stocks, only three stocks-Aiico, Wapic Insurance and Mansard Insurance, have so far this year posted positive returns. Twenty five insurers remain dormant at nominal values while four stocks lose varied values. Compare the pricing trends in January 2008 and now, the extent of the recession in the Nigerian insurance sector looms larger than the global economic and financial crises. Insurance stocks have literally fallen off the cliffs. In the early 2008, nearly all insurance stocks were trading in three digits, in multiples of their nominal values and considerably in competitive prices with other related stocks. Prestige Assurance and Intercontinental Wapic Insurance-two sectoral leaders by share prices, opened February 2008 with four-digit values at N11.40 and N10.60 respectively. Today, Prestige Assurance is stuck at 51 kobo per share while Wapic Insurance has slumped to 56 kobo. Other insurance companies relate the same story. Aiico Insurance opened February 2008 at N3.43, Continental Reinsurance set out at N5.15, Cornerstone Insurance was N6.19, Crusader Insurance traded at N7.85, Custodian and Allied Insurance was N6.50, Great Nigeria Insurance opened at N3.80, Guinea Insurance’s price on board was N4.30, Lasaco Assurance was valued at N4.88, International Energy Insurance opened at N5.94 while Law Union and Rock Insurance was traded at N6.10. Other market considerations then included Linkage Assurance, N4.80; Mutual Benefits Assurance, N4.96; NEM Insurance, 4.35; Niger Insurance, N8.70; Oasis Insurance, N4.63; Royal Exchange Assurance of Nigeria, N5.43, Sovereign Trust Insurance, N4.56 while Unic Insurance opened February 2008 at N5.51 per share.

    But contrary to the largely diversify and generally upward pricing trend in early 2008, insurance stocks open today with almost a generic depressive outlook. Currently, more than 78 per cent of quoted insurance companies are trading at their nominal value of 50 kobo per share while the remaining few are trading mostly around the nominal value.

     

    Suffering from the hangovers

     

    Without major natural or artificial disasters that could have shaken risks-bearing companies to their net assets, the current outlook of the insurance sector is largely a direct result of the stock market recession. Heavily exposed to the equities market, unyielding depression in shares prices directly built up losses and provisions in the profit and loss accounts and balance sheets of insurance companies. On the other end, share prices of insurance companies have generally been the worst hit by the recession as a hangover of negative industry perception, streak of impaired portfolio-induced losses and reticent management combined to single out insurance sector as the highpoint of the bear market.

    With huge funds raised during the capital market boom, and following the trails of squandering banks, insurance companies had turned mainly to the capital market to invest their bubble-induced assets. Small and medium insurance companies, which had metamorphosed into big companies with outstanding shares and equity funds larger than size of business, left the conservative nature of risk assessment and provision-the core expertise of insurers, and turned into speculators. However, the general depression in the insurance sector appears to be more as a result of psychological investing or class phobia- a segregation that tends to view an entire group within the same window irrespective of individual potential. While the historic fundamentals of most insurance companies were discouraging, emerging fundamentals of several insurers show good potential, especially when viewed against the bottom-rock share prices. With improving bottom-lines in the immediate past year, several insurance companies had resumed dividend payments.

    For instance, nine-month report for the period ended September 30, 2012 showed that Aiico posted a pre-tax profit of N1.86 billion as against N1.02 billion recorded in comparable period of 2011. Profit after tax increased from N836.69 million to N1.18 billion. Also, Oasis Insurance’s profitability improved considerably with a pre-tax profit of N183.21 million by September 2012 as against N56.44 million by September 2011. Net profit after tax jumped from N45.98 million in 2011 to N171.55 million in 2012. Several other insurance companies have substantial net earnings while net assets are considerably higher than market values.

     

    Discovering values for insurers

     

    While investors need to tread cautiously, the relatively low turnover-to-net assets ratios of most insurance companies and low share prices present attractive combinations for discerning investors. On one hand, there is significant headroom for underwriting capacity and growth. On the other hand, there is still much growth potential in the Nigerian insurance industry. From government to the National Insurance Commission (NAICOM) and to operators, insurance stakeholders have recently taken major steps to enliven the performance of the industry. The passage of the Nigeria Content Development Act and other laws on compulsory insurance by government has opened up tremendous business opportunities for insurance companies. The Local Content Act requires that all insurance risks associated with oil and gas sector including prospecting, exploration, drilling, constructions, shipping, distribution, marketing and transportation must be insured in Nigeria with registered Nigerian insurance company. This law alone represents immense opportunity for well-capitalised and stable insurance companies.

    Besides, NAICOM has also in recent period taken many far-reaching and proactive steps to standardize insurance operations and enforce conformity with best practices. NAICOM has introduced new accounting standards with more stringent provisions to ensure that insurance profit and loss accounts and balance sheet showed the true state of affairs. Insurers are also expected to make timely rendition of accounts, making their returns more predictable. With the broad provisions of the Insurance Act and related NAICOM guidelines, the tough stand of the insurance regulator has greatly improved the operating environment. The industry regulator is also leading the charge for compliance with existing compulsory insurance laws.

    Although insurance industry is still highly fragmented with some 51 insurance companies, well-managed quoted insurance companies stand to benefit both in the event of industry consolidation or market-driven competitiveness that places premium on security of insurance rather than lower rates. With estimated penetration of some seven per cent, Nigeria’s large population and expansive economy also put insurers on good footings. It is these medium to long term outlooks that should concern discerning investors. While immediate liquidity may be a challenge, relatively good and stable returns and appreciable long-term capital appreciation will compensate for the waiting period.

     

  • Insurers: Sandy’s damage hits $10b

    Some insurance companies say they were prepared for Hurricane Sandy, but the same may not be true for flood insurers who are feeling increased pressure as the storm caused more water damage than normally expected in such storms.

    Hurricane Sandy’s overall toll on the economy could be as high as $20 billion, according to estimates released before the storm, with traditional insurers on the hook for about $5 billion to $10 billion of damage. That would make the storm more devastating than last year’s Hurricane Irene in dollar terms, but not nearly as bad as Hurricane Katrina in 2005.

    The National Flood Insurance Program, however, which is administered by the federal government, may be facing some large bills. While most hurricanes produce heavy winds and rain, Sandy brought with it the highest water levels in New York Harbor since the 1960s, causing massive flooding on the city’s streets, subways and buildings. Depending on the extent of the damage, which has yet to be determined, that could be very expensive.

    “I would say the estimates I saw come out before the storm looked low to me,” said Ryan Ogaard, senior vice president of product management at Risk Management Solutions, a California-based company that specialises in catastrophic risk modeling used by insurers. “I don’t think anyone realized what was going to happen with the level of flooding. It really was a worst-case scenario in some places.”

    Insurers have yet to release their damage estimates, and it may take days or weeks to compile the information. But Risk Management and Eqecat, another firm that calculates the industry’s disaster exposure, expect it to be worse than Irene, which cost insurers about $4.5 billion in losses.

    Those figures would have little impact on overall health of the industry, which could potentially withstand damage up to $100 billion, which is twice the tab from Hurricane Katrina, according to Eqecat President Bill Keogh.

    “That’s certainly something the insurance industry can absorb,” Mr. Keogh said. “It would be really hard to do a lot of damage to the industry. It really isn’t getting to the point of stressing the capital structure of the industry.”

    Insurers prepared for the storm over the weekend, sending emergency crews to central locations that were expected to be hit the worst.

    Agents are setting up mobile units where policyholders can come to file claims for the next few weeks. Insurers also will send adjusters out to affected homes to assess the damage.

    Bob Hartwig, president and economist at the Insurance Information Institute, said insurance companies are deploying “armies of adjusters” to affected neighborhoods.

  • ‘Insurers need to reinvent themselves’

    ‘Insurers need to reinvent themselves’

    Mr. Adegboyega Adepegba, Director, General, Chartered Insurance Institute of Nigeria (CIIN), in this interview with Ibrahim Apekhade Yusuf, reflects on the theory and practice of insurance in Nigeria

    What is your assessment of the insurance industry?

    My assessment is that there are still a lot more to be done by the industry itself, there are still a lot more to be done by the institute where I happen to be the Director General. I will say the Chartered Insurance Institute of Nigeria (CIIN), which is the body that has been given the statutory powers to train and retrain insurance professional and persons in Nigeria, is doing its best to ensure that those who will hold themselves high as professionals are well trained before they are certified. That is, for you to become an insurance professional, you must have gone through some prescribed examinations, which the institute conducts. And the examination is in three parts, we have the certificate, the diploma and advanced diploma stage. If any one hopes to hold himself high as a professional, he must go through these examinations. The institute provides different services to enable us prepare the students for examination. We also have a college that has been put in place to ensure that we train those who would take the examinations and those that will come in for refresher courses. The institute has also some examination programmes that it conducts on regular basis, some on annual bases and regular intervals.

    For example, the conferences, seminars, in house programmes and Mandatory Continuing Professional Development (MCPD) training programme. In all that I have said concerning the efforts of the institute, I think the insurance education in the country is not doing badly. I can say members of the industry are getting the best on training. We have also encouraged that education is not something you get from a particular source like the CIIN; we also encourage students and our members to develop and re-develop themselves. The MDCP programme for example ensures that students write, carry out research, and attend programmes that can broaden their knowledge about the practice of insurance. I can say the insurance in Nigeria is gathering momentum.

    What are the challenges confronting the institute?

    There are a lot of challenges; of course finance is the major issue, whether for the institute or the corporate bodies that would send their staff for programmes. Over the years, I want to suspect, that the budget for training has being falling, I do not have the figures, but I suspect, that there might be some scaling down of budget for training, this is a major challenge. This is because no matter how good and elaborate a training programme is, if we do not have more of our members attending there is a challenge. It is no longer fashionable for a practitioner to just have one certificate in the present dispensation. Professions have intertwined that somebody must have a bit of what is obtainable in other professions. The knowledge that was impacted 10 years ago may not be sufficient to drive the business of today. Therefore, there is the challenge for our people to change in learning new things and asking more questions. There is also the challenge on research, raising qualified people who can impact knowledge on young practitioners.

    Our professionals are very busy people, but the time has come for them to give back something to those that are coming up. The challenge we have here is that the professionals have their primary duties and must meet certain targets in their officers. We have been trying to encourage the professionals, but it has not been easy. We try to encourage people to have mentors and build relationships, but we still have some challenges. We hope that so many good hands we have in industry, which may not be getting younger, there is need for us to begin to ask them to impact on others.

    How has the institute fared in encouraging intake of fresh hands to replace aging practitioners?

    Most professionals have continued to age and we have continued to educate young people to take our examination to boost their performance. We have improved on our awareness drive and there are more people coming in to register for our examination, but there is still the need to fast track it. I believe we must be able to match the number of people coming in two times over and above those going out. That we have not been able to achieve. There is a danger if we have for an example 30 people retiring every year and we cannot find about 40 or 50 people replacing them by way of qualification. Exit can be as a result of death, retirement, loss of jobs and other factors, whereas, the only entrance into the profession is the CIIN which monitors those who come into the industry. When we did the last count, we observed that we have average of 60 people joining the profession every year. I do not want to go into the number of people that leave the industry for I do not have the figure, but we know that people are leaving due to age and other reasons. I believe there has been some improvement in the number of people coming in; for we are working seriously to get more people into the profession through National Youth Service Corps (NYSC) orientations campaigns, visit to tertiary institutions, Catch Them Young Programmes, our Operation 5000 Graduate Scheme and others.

    What is the state of the insurance college?

    The college of insurance and financial management is evolving; its blue print is ready. I do tell people that the college is not the building – the number of classes we have, but the blue print which we have been able to develop and where the blue print is taking us to is that within the next few months, we would be admitting students. Whether we admit them in the permanent site or somewhere else, would not be the most important thing now, but the important thing is that we have a blue print and we are bringing in people that would run the college. We would be bringing experts from the industry that would form the faculties of the college. Presently, the administration block of the college is completed, the restaurant 90 per cent completed, we have seven chalets that have also been completed. With the complement of buildings we have in there, we can start. We have made tremendous progress on the college. We have completed the administration block that houses the class rooms and can sit about 2000 students. We have admin offices for the college rector and other staff. We have a restaurant and seven chalets for people who may want to stay overnight. The next stage is for us to build the halls for presidents and that I think before the end of the year, we shall lay the foundation for that.

    As a non professional, how have you been able to cope with the administration of the institute?

    While I would not unduly justify that a non professional can run this place, I want to say that what is required to run this place successfully is a good knowledge of management.

    Other things required to run the institute are deep managerial skill, ability to wed people together, ability to win the support of the industry, ability to meet the needs of members, cutting down one’s excesses. The work here is like that of a judge. In the years I have been here, I have lost many friends and cut down many because if one is running an institution like ours, he must be above board.