{"id":34507,"date":"2019-09-09T12:05:30","date_gmt":"2019-09-09T11:05:30","guid":{"rendered":"https:\/\/nationalwire.com.ng\/?p=34507"},"modified":"2019-09-09T12:05:30","modified_gmt":"2019-09-09T11:05:30","slug":"only-25-insurance-firms-will-survive-recapitalisation-says-cmb","status":"publish","type":"post","link":"https:\/\/nationalwire.com.ng\/sub\/only-25-insurance-firms-will-survive-recapitalisation-says-cmb\/","title":{"rendered":"Only 25 Insurance Firms Will Survive Recapitalisation, Says CMB"},"content":{"rendered":"

A report by Coronation Merchant Bank Limited (CMB) has predicted that the ongoing recapitalisation in the insurance sector will reduce the current number of companies operating in the industry from 59 to about 25.<\/p>\n

The bank stated this in its latest report on the Nigerian insurance industry titled: \u201cFrom the Lagoon to the Ocean,\u201d which was unveiled at the weekend.<\/p>\n

The National Insurance Commission (NAICOM) had imposed a new capital requirements for the industry, with a deadline of June 2020.<\/p>\n

\u201cThey are likely to reduce, in our view, the number of Nigerian insurance companies from 59 to a figure around 25.<\/p>\n

\u201cHigher capitalisation increases underwriting capacity and the potential exists to roll-out a much bigger industry than currently exists.<\/p>\n

\u201cSo far, Nigeria\u2019s insurance industry has lagged its other financial services. Conditions have not been helpful for growth. Experience from other markets, particularly in Asia, suggests three remedies,\u201d it stated.<\/p>\n

The bank, which did a comparison between the ongoing recapitalisation in the sector with what took place in the banking sector in 2004, noted the close parallels with the then banking reform.<\/p>\n

\u201cThe banking industry grew rapidly after that, so the question is how the insurance industry can grow after 2020. In the meantime, there will be capital raising and mergers and acquisitions (M&A),\u201d it stated.<\/p>\n

According to the report, Nigeria\u2019s insurance sector presents perhaps the most remarkable investment case of any industry in Nigeria.<\/p>\n

It noted that insurance penetration, at 0.31 per cent, was extremely low, even compared with countries with similar Gross Domestic Product per capita.<\/p>\n

\u201cFor example, India\u2019s insurance penetration is at 3.69 per cent. Experience in other countries shows that in the right conditions, insurance can be rolled out to India\u2019s level in eight to 10 years.<\/p>\n

\u201cSo, Nigeria could go from 0.31 per cent penetration to 3.69 per cent penetration in 10 years.<\/p>\n

\u201cIs this far-fetched? Note that our investment case does not require Nigeria to become any richer. A 10-fold increase in real terms over 10 years means a real-term compound annual growth rate (CAGR) of 25.9 per cent. Nigeria has seen this happen before.<\/p>\n

\u201cThis is the same CAGR achieved in gross customer loans by Nigeria\u2019s banks (actually, 27.9 per cent) in the five years after the banking reform of 2004.<\/p>\n

\u201cTo take a more modest and recent example, the real-term CAGR for total assets under management in Nigeria\u2019s pension funds was 9.8 per cent 2008-18, or 155 per cent growth in real terms over 10 years.<\/p>\n

\u201cNigeria is no stranger to financial services development,\u201d it stated.<\/p>\n

The report added that the banking reforms of 2004 imposed steep new capital requirements and reduced the number of banks from 89 to 25.<\/p>

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Therefore, it predicted that insurance reforms in 2019, and due for implementation by June 2020, also imposes steep new capital requirements.<\/p>\n

Shedding more light on the report, Head, Coronation Research, Guy Czartoryski, said the Nigeria\u2019s insurance industry had not shared in the growth experienced by other Nigerian financial services, notably banks, pension funds and mutual funds.<\/p>\n

He stressed that the sector has hardly grown in real terms over 10 years, adding that without scale, the industry suffers from poor returns on equity.<\/p>\n

\u201cYet its smallness is also its opportunity.<\/p>\n

If it were to grow to the level reached by countries with similar GDP per capita, it might grow by a factor of 10 times in real terms in eight-to-10 years.<\/p>\n

\u201cThe technological infrastructure and data necessary for expansion are largely available.<\/p>\n

\u201cLessons learned in Asian markets, and also in West Africa, show how insurance can be rolled out to tens of millions of customers. Cooperation between regulators is critical, as are distribution partnerships with banks and telecom companies.<\/p>\n

\u201cFresh capital is necessary for development, but a fresh strategic approach is required to reach the industry\u2019s potential,\u201d Czartoryski added.<\/p>\n

Commenting on development in the industry, the President, Nigeria Council of Registered Insurance Brokers (NCRIB), Mr. Shola Tinubu, advised operators to embrace mergers, and bring up new ideas and solutions to their operations.<\/p>\n

Tinubu, who is also the Managing Director, Scib Insurance Brokers, \u00a0 spoke in a telephone interview with THISDAY.<\/p>\n

According to Tinubu, not more than 50 per cent of the existing firms would scale the reform.<\/p>\n

According to him, already, discussions on mergers were ongoing among the firms for possible mergers.<\/p>\n

\u201cSome of them do not want their merger talks to leak now so that it will not fail,\u201d he added.<\/p>\n

Tinubu, stressed that any company that does not meet the new capital requirement would lose its licence.<\/p>\n

But the Managing Director, Senforce Insurance Brokers, Mr. Felix Epebinu, said the problem with recapitalisation in Nigerian insurance sector was always the short notice given to the operators to raise capital.<\/p>\n","protected":false},"excerpt":{"rendered":"

A report by Coronation Merchant Bank Limited (CMB) has predicted that the ongoing recapitalisation in the insurance sector will reduce the current number of companies operating in the industry from 59 to about 25.<\/p>\n","protected":false},"author":6,"featured_media":34508,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[23,1593,17,624],"tags":[6120],"coauthors":[2391],"class_list":["post-34507","post","type-post","status-publish","format-standard","has-post-thumbnail","","category-business","category-metro","category-news","category-politics","tag-insurance-recapitalisation"],"yoast_head":"\nOnly 25 Insurance Firms Will Survive Recapitalisation, Says CMB - National Wire<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/nationalwire.com.ng\/sub\/only-25-insurance-firms-will-survive-recapitalisation-says-cmb\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Only 25 Insurance Firms Will Survive Recapitalisation, Says CMB - 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