The Nation Newspaper

Tag: reinsurance

  • ‘Nigeria’s reinsurance retention below 30%’

    Nigeria’s reinsurance retention of insurance business is far below 30 per cent, signifying non-compliance by operators with Federal Government’s local content policy established in 2010.

    This means that insurance companies still cede over 70 per cent of their business offshore as against 30 per cent required by the local content policy.

    The Federal Government, through the National InsuranceCommission (NAICOM) in February, said it would punish insurers who act against the local content policy. This followed its discovery that some operators either fail or refuse to consider country capacities of reinsurance institutions.

    The local content policy requires that operators consider country capacities of insurance and reinsurance institutions, such as pools, reinsurers and other locally recognised capacities up to 70 per cent, prior to applying for approval to cede 30 per cent proportion of some risks offshore.

    But Nigeria Reinsurance Corporation Managing Director, Lady Isioma Chukwuma told reporters that the percentage of risks retained in the country was not in the region of the 30 per cent stipulated as what should be taken abroad.

    She expressed dismay that operators were not complying with the guidelines of the policy and called on NAICOM to enforce compliance.

    She said: “Sometime ago, NAICOM issued circulars informing the industry that it punish insurers who act against the local content policy which is good for us. But there is no enforcement by the regulator. Yes, the regulator is helping us to ensure that local content is exhausted but they are not monitoring to ensure strict compliance to the circulars they gave out. There is no way to check errant companies and that is why businesses are still been taken abroad without exhausting local capacity.

    “The percentage of risks retained in the country now is far below what is expected. It is not in the region of the 30 per cent stipulated as what should be taken abroad. We are not claiming that we have adequate capacity to cover the risk we have presently. But what we are saying is that the local market should make sure that at least they exhaust what we have in the market.

    “All we are asking is that they should give the local market, the local reinsurance first proposal to take up their capacity, exhaust their own local capacity before they do businesses abroad because come to think of it, reinsurance is all about the spreading of risks. So, we are not saying they should retain everything locally. Let them exhaust local capacity before taking them abroad.”

    Kari, in the circular to operators in February, pointed out that in some situations where the pools, insurers or reinsurers were offered participation, the institutions were offered minimal proportion below their capacity, informally restricted and, or compelled to accept lower than their capacities for the purpose of justifying cession of the risks offshore.

    He said this unethical practice which undermines our collective resolve to ensure full utilisation of available in-country capacity in line with domestication and the local content policy, contravenes extant insurance laws and regulations, and shall not be tolerated henceforth.

    “Additionally, the Commission has observed that some insurance institutions have inappropriately arrogated to themselves the authority to unilaterally exclude some insurers over alleged outstanding claims. It has, therefore, become imperative to remind all insurance institutions that they are required to report any alleged non-settlement of claims to the statutory grievance/complaint redress mechanisms for appropriate action prior to determination of their participation.”

  • Africa Re makes insurance, reinsurance awareness as part of CSR

    African reinsurance Corporation (Africa Re) has set for itself the development of the insurance and reinsurance industry in Africa as one of its Corporate Social Responsibility (CSR) initiative, the deputy Managing Director, Ken Aghoghovbia has said.

    He made this known at a briefing  in Lagos. He said the CSR initiative has been branded “The Insurance Awareness Campaign.”

    He said they decided to adopt the campaign, following many uninsured lives, properties and businesses.

    Aghoghovbia said: “We have witnessed many children unable to complete their education following the death of their uninsured breadwinners. The Nigerian Insurance Association (NIA) reported that only 4.3 million vehicles have genuine motor insurance out of 12 million vehicles on the Nigerian road and this is validated by the number of fights between drivers in events of vehicle accidents. All this could have been avoided if the individuals were aware of the benefits of insurance. The extremely low insurance penetration rate of 0.3 per cent is not healthy for the growth of the Nigerian economy.

    “The corporation is well positioned to guarantee that insurers will fulfill their roles in African markets. This campaign aims at developing an integrated behavioural change to enhance the effort made by the National Insurance Commission (NAICOM) and the NIA to bridge the knowledge, experience and perception gaps in the Nigerian insurance market.

    “The campaign is set to correct the negative and prevalent perceptions plaguing the industry; drive penetration and density as well as grow insurance culture across the country, enlighten the public on credible insurance partners on how to get and enjoy the benefits of insurance in Nigeria. Africa Re has decided to invest in creating awareness about the insurance because we realise that there is a dearth of knowledge among then general populace.”

    He said that this is in spite of the fact that as a reinsurance company, they only deal with insurers/ reinsurers and not with the individual beneficiaries of insurance policies.

  • It is not your father’s Reinsurance market anymore’

    The reinsurance sector has always been a leader in terms of evolution, but over the past few years the pace of change has unquestionably been more rapid. According to A.M. Best report, historically, changes within the sector had been cyclical in nature, but now many observers believe the current evolution to be structural. The market is operating in a “new reality” of abundant capacity from traditional and alternative sources, low interest rates and thinner reinsurance margins driven by intense competition against shrinking demand for reinsurance cover.

    At this year’s annual shareholders’ meeting, Chairman and CEO, Warren Buffett, Berkshire Hathaway said:  “It’s a business whose prospects have turned for the worse and there is not much we can do about it,” adding that the reinsurance industry in the next 10years “will not be as it had been in the last 30”.

    Historically, traditional reinsurance protection had been the primary source of capacity for cadents. That is clearly changing as primary companies are retaining more risk and are increasingly utilising alternative markets for their risk management needs.

     

     

    At the same time, the old playbook of private equity starting a traditional reinsurance company and then exiting via an IPO is becoming less attractive. Investors would rather put capital to work for a relatively short period of time (typically 1 to 3 years) as opposed to creating new companies that require longer-term capital commitments with a less certain exit strategy. Ease of entry and exit, among other things, is key to reinsurance risk functioning like a tradable asset class.

    Ultimately that seems to be the end game, conceivably for all reinsurance risks, to be able to wake up in the morning, wait for the market to open, and trade in or out of various pools of reinsurance risk – even if there was an event the night before.

     

  • Nigeria Reinsurance Corporation strategises for growth

    Nigeria Reinsurance Corporation has adpoted a new strategy aimed at reclaiming and sustaining its leadership in the reinsurance market.

    The Managing Director of the company, Lady Isioma Chukwuma made this known to reporters in Lagos.

    She disclosed that the execution of the new strategies has begun with the creation of a new department called critical operations, noting the department is divided into three, namely customer loyalty, research and development and strategic performance units.

    She said the organisation has since spearheaded the implementation of the strategy for the successful realisation of the new charge.

    She said: “The new roadmap is all encompassing. It is designed to create more market for the company, improve customer relationship, increase the company’s premium level and improve the visibility of the company.

    “The management of the organisation has packaged special programmes specifically for our external partners. These programmes will include local and international seminar/lectures, monthly customer loyalty team visits to all our existing and potential customers.’’

    She noted that the objective requires an urgent strategic roadmap for projecting the new possibilities in the reinsurance market, and that this need formed the reason the board of the company embarked on a week’s retreat where the new roadmap was rolled out.

    The retreat, she said is tagged, “Strategic roadmap for Nigeria Reinsurance Corporation” and has a time frame of 10 years starting from 2014 to 2024 and would be reviewed every five years for improvement where necessary.

  • Pensions influence catastrophe reinsurance

    The $30 trillion global pension fund industry is starting to muscle in on traditional reinsurers financing protection against earthquakes and tornadoes.

    This is even as interest rates, which near record lows spur the search for yield on catastrophe.

    According to The Telegraph, Guy Carpenter, the reinsurance brokerage of Marsh & McLennan Cos, said a record $10 billion of institutional money flowed into insurance linked investments in the 18 months through June, and for the first time is directly influencing pricing of some catastrophe risk coverage.

    LGT Capital Partners AG added that catastrophe bonds can yield as much as 15 per cent.

    Coverage provided by alternative capital, as pension and hedge-fund money is known in the insurance industry, reached $45 billion at the end of 2012, about 14 percent of the total global property catastrophe limit purchased, Carpenter said. While welcomed by nations seeking to spread disaster burdens, pension investment is pushing down prices, even as reinsurers press for higher rates to compensate for more frequent extreme weather.

    David Flandro, global head of business intelligence at Guy Carpenter in New Yorksaid this is the biggest change to the reinsurance sector’s capital structure in the last 20 years.

    “Catastrophe reinsurance is relatively high-risk, high-return. Pension funds are looking for direct access. Most of the capital is here to stay.”

    In a catastrophe bond, insurers pay buyers some of the premiums collected for protection against damage from natural disasters. In exchange for above-market yields, investors assume the risk of a disaster during the life of their bonds, with their principal used to cover damage caused if the catastrophe is severe enough. The first catastrophe bonds were issued after Hurricane Andrew in 1992.

    Meanwhile, New Zealand’s Superannuation Fund said in May it planned to more than double its holdings in catastrophe bonds and other insurance linked assets, while firms such as PGGM NV in the Netherlands and Royal Bank of Scotland Group Plc’s employee retirement fund have stepped up their reinsurance investments.

    Pension assets have reached $30 trillion globally this year, according to estimates from J. P. Morgan Asset Management.

    “This is a coming-of-age moment,” said Michael Millette, global head of structured finance at Goldman Sachs Group Inc., which managed a catastrophe bond offering for the New York Metropolitan Transportation Authority after Superstorm Sandy in 2012. “Some of the largest asset-management complexes in the world are becoming more engaged in the space.”

    Catastrophe bonds can become even more attractive in the wake of a disaster as capital is depleted and insurance prices rise, said EvelineTakken, head of insurance-linked securities, or ILS, at PGGM, which oversees about 140 billion euros ($193 billion) in retirement savings for Dutch pension funds.

    PGGM is continuing to set up new investments in catastrophe insurance, eight years after its first forays following Hurricane Katrina, she said by phone from Zeist, Netherlands.

    The Swiss Re Cat Bond Total Return Index, which tracks dollar debt sold by insurers and reinsurers, shows catastrophe bonds have returned about 10 percent this year. U.S. 10-year Treasuries currently yield 2.5 percent. Takken and other fund managers interviewed declined to disclose their returns.