Foreign investors behind rally in insurance sector

EMEKA EJERE|   The upsurge of foreign interest in the Nigerian insurance industry is raising the tempo of a sector formerly plagued by inactivity, Business Hallmark’s investigations have revealed.
The foreign multinationals are, among other things, bringing into the industry expertise, capital and technology thereby engendering a healthy competition that has made even the local underwriters to consider moving away from their traditional products and becoming innovative in order to compete effectively in the new era.
The foreign firms are mainly attracted to the local market by the huge population and vast untapped underwriting business in the country. With a population of over 170 million growing at 2.5 per cent a year – along with a steady GDP growth of 6.3 per cent in 2014, Nigeria offers sizeable potential for insurers albeit a crowded market.
Bythe end of November 2014, France’s Axa announced that it had acquired a 77 per cent interest in Mansard Insurance, formerly Assurance, for €198m.According to a report by FBN Capital Research, Axe is not the first foreign entrant into the Nigerian market as it only joined a growing trend.
Group NSIA, a company based in Abidjan, Cote d’Ivoire, had bought 96.15 per cent equity of Diamond Bank Plc in ADIC Insurance Company Limited. Assur Africa Holding, a consortium of three European Development Finance Institutions (DFI), and two private equity firms, acquired 67.68 per cent shareholding in GTAssurancePlc and changed its name to Mansard Insurance Plc.
The DFIs are FMO (Netherlands Development Finance Company), DEG (German Investment Corporation), and PROPARCO (French Development Finance Company), while the private equity firms are Development Partners International, United Kingdom and Africinvest, Tunisia.
Sanlam Emerging Markets, a group of South Africa-based investors, bought 35 per cent stake in FBN Life Assurance Limited with First Bank of Nigeria Plc owning the remaining 65 per cent.
Old Mutual Plc, also from South Africa, bought 70 per cent stake in Oceanic Life Insurance Limited and now operates under the name: Old Mutual Nigeria Life Assurance Company Limited.
Old Mutual bought over the insurance firm from Ecobank after the latter acquired controlling stake in Oceanic Bank International, while Cressida Nigeria Limited has 29 per cent stake in the company and the residual one per cent is owned by private individuals.
As at January 2015, foreign direct investment (FDI) attracted by the insurance sector in one year was put at about $750 million.The major driver behind the deals in Nigeria has been the Central Bank of Nigeria (CBN’s) decision to reverse universal banking licenses.
In August 2010, the CBN directed banks under its supervision to divest from their subsidiaries, including insurance companies to enable them concentrate on their core banking business.
“The main driver, however, has been the positive demographics and rising household incomes across Africa, sometimes dressed up as the emergence of the middle class. The new national accounts with a base year of 2010 were helpful in this respect. The same investment rationale can be applied to banks, retail, telecoms, consumer goods manufacturing and advertising,” the report said.
It added that “South Africa’s Sanlam views Nigeria as one of its star markets in Africa, noting that the operation achieved breakeven after little more than two years. It cited figures showing that insurance penetration stands at about 10 per cent in South Africa yet less than 2 per cent in Nigeria.
According to the latest figures from the market regulator, the National Insurance Commission (NAICOM), there are 58 policy writers operating at present, 29 of which are general insurance firms, 15 life insurers and the remaining 14 composite insurers offering a full range of services.
Recent NAICOM data shows that more than three million Nigerians have some form of insurance, up from less than one million in 2007. However, coverage rates vary, with higher levels for property and automotive insurance and a low take-up of personal policies such as life or health.
With greater acceptance of insurance products, premiums and assets have soared over the past eight years. Gross premiums rose from less than N100 billion ($502 million) in 2007 to N302 billion ($1.51billion) at the end of 2014 while asset values more than doubled over the same period from N347.1 billion ($1.74 billion) to N711.4 billion ($3.57 billion), the NAICOM figures show.
The report also said NAICOM expects N1 trillion for 2018. The then Coordinating Minister for the Economy, Dr. NgoziOkonjo-Iweala, had projected N5trillion within 10 years.
NAICOM data for 2013 show that the unlisted Leadway achieved the largest gross premium income (N41.8billion). The next four are all quoted on the Nigerian Stock Exchange: AIICO (N22.8billion, Custodian and Allied (N20.5billion), Continental Reinsurance (N13.8billion) and Mansard (N13.6billion).
Figures from NAICOM also revealed that foreign equity holdings have risen to 62.8 per cent in at least seven insurance firms. Many investors are also negotiating with the underwriters on how they can invest in the local market.
Immediate past Commissioner for Insurance, Mr. FolaDaniel, confirmed that there had been an increase in foreign equities in the country’s insurance industry.
“Companies with foreign equities have increased in the insurance sector, generating substantial foreign direct investment,” had said.
The Chief Executive Officer, Sanlam, Mr. HeinieWerth, said a major point of attraction for investing in the Nigerian market was the visibility of developmental projects and prospects for growth in the economy.
With the vast experience and exposure that Sanlam has in doing insurance business internationally, he said it was bringing in lots of experience to assist the local industry to develop faster. The company, he added, was also adding value because it believed in working through the local people thereby creating employment opportunities in the society.
Sanlam, Werth noted, had huge spectrum of products, which it planned to introduce into the country through FBN life.
Healthy competition
The Managing Director, Niger Insurance Plc, Mr. Kola Adedeji, was quoted as saying that some multinationals were coming into the country to explore the potential in its huge population.
“They believe the insurance industry is still very weak. The insurance industry has been around for a very long time, but we are still evolving,” he said.
According to him, the coming of the multinationals will bring with it keen competition in the market and engender growth.
“They are coming in with better technology, capital, ideas, expertise and products. Those of us that have been in insurance, we need to really brace up. These people are coming in stronger terms,” Adedeji said.
Also MrOye- Hassan Odukhale ,Managing Director of Leadway Insurance Ltd. does not see anything frightening about the influx of foreign investors in an industry he thinks competition and more capital can only take to another level.
He said, “It is a bright future when more people come; they will throw more capital into the business and make the business more competitive and tough and they will raise the barrier to entry which is good because they are coming with a lot of capital. So it will take the industry to a different level. So I don’t see anything negative in that.
“I think we will all co-exist. It will not be easy except if we too are very lazy but at the end of the day, the consumer will get a better product because there will be competition but if the local players are not up to it, that is their own challenge.”

The industry has in the last five years witnessed some reforms that have contributed to its attractiveness to foreign investors. They include the Enterprise Risk Management (ERM), corporate governance, risk-based supervision, International Financial Reporting Standards (IFRS), as well as the Market Development and Restructuring Initiative (MDRI) and enforcement of the old law of ‘No Premium No Cover’ policy among other things.
Commenting on the rising interest of foreign investors last year, Deputy Commissioner for Insurance (Finance and Administration), Mr. George Onekhena, observed that before the enforcement of the no premium no cover foreign investors making enquiries on how to come in as a player in the industry usually asked about the industry’s “gross premium income on cash basis. Investors used to enquire about the gross premium income on cash basis but they don’t ask again because we have resolved this.”
Also, the Chairman of Governing Board,NAICOM, Chief ChibudomNwuche, was quoted as saying that the increase in the number of foreign investors in the industry is an affirmation of successes recorded in the market.
According to him, the number of foreign investors in the industry has risen from three five years ago to 10 with many other foreign insurers still making enquiries on how to come into the market.
“The commission has historically implemented a number of regulatory and developmental initiatives that have significantly improved the conditions in the Nigerian insurance sector and enhance its attractiveness to investors. A good evidence of this is the increased number of foreign investors that have taken equity interests in insurance institutions in Nigeria.
“In specific terms, there are now 10 Nigerian insurance institutions with significant foreign ownership as against just three five years ago and more foreign investors are making enquiries on requirements for participation in the Nigerian insurance sector,” Nwuche said.
Meanwhile some local underwriters are beginning to prove impressively innovative even at the international level. During the 20th anniversary lecture of Mutual Benefits Assurance Plc, Group Managing Director of the company Dr. Akin Ogunbiyi noted that in May 2015 in Tunis, Tunisia, Mutual Benefits achieved a landmark in the history of insurance in Nigeria as it was adjudged the most innovative insurance company in Africa in a keenly contested award ceremony sponsored by African Reinsurance Corporation.
He said Mutual’s entrepreneurial initiative of growing the insurance business made it a leader in Nigeria as well as the entire African continent.
President of the African Export-Import Bank, Dr. Benedict Oramah, also at the lecture said insurance companies should emerge from their comfort zones to take up the opportunities that were being presented by the developments in the global and African markets.
He urged African insurance companies to begin to develop innovative products that would address specific needs of the continent.
“They should begin to provide credit insurance to African banks and other financial institutions to enable them extend medium to long-term credit to African entities engaged in trade and trade projects,” he said.