Investment opportunities for UK Companies in the Nigerian Insurance Sector
Presentation by
Mr Babajide Oniwinde
Deputy Director, Corporate Strategy
National Insurance Commission
at the
Industry Leaders Forum of the Financial & Professional Services Mission to Nigeria held
in Lagos on 17th March 2014
Doc ID L
ast M
od
ified
P
rinte
d
|
Presentation Outline
Introduction
Regulation of the Insurance Sector
Industry Structure
Performance of Insurance Companies
Developments in the Insurance Sector
Areas of Opportunities
Conclusion
.
1
Doc ID L
ast M
od
ified
P
rinte
d
|
Introduction
Nigeria is the second highest contributor to the
GDP for sub-Sahara Africa.
Nigeria financial services market is developing
fast and 39% of the adult population have
access to banking services compared to just 2%
for insurance services. The capital market is a
top performer.
.
2
Doc ID L
ast M
od
ified
P
rinte
d
|
Introduction
There is a growing middle class emerging and
increasing number of high net worth individuals
who would need insurance for their assets.
Awareness of financial services products is
growing and the regulators and policy makers
are intervening through legislative reforms to
strengthen the banking and insurance
institutions and improve the image in the eyes
of the public.
.
.
3
Doc ID L
ast M
od
ified
P
rinte
d
|
Quick Reminder of our situation….cont’d World’s Largest Economies (GDP- Nominal)
World Bank (2011)
Rank
Country GDP (Millions of US$)
Rank Country GDP (Millions of US$)
1. United States 15,094,000 12. Spain 1,490,810
2. China 7,298,097 13. Australia 1,371,764
3. Japan 5,867,154 14. Mexico 1,155,316
4. Germany 3,570,556 15. South Korea 1,116,247
5. France 2,773,072 16. Indonesia 846,832
6. Brazil 2,476,652 17. Netherlands 836,257
7. United Kingdom 2,194,750 18. Turkey 773,091
8. Italy 2,194,750 19. Switzerland 635,650
9. India 1,859,747 20. Saudi Arabia 576,824
10. Russia 1,857,747 27. South Africa 408,237
11. Canada 1,736,051 41. Nigeria 235,923
Source: Wikipedia, www.wikipedia.org/wiki/list_of_countries_by_GDP(nominal)
Slide 4
Doc ID L
ast M
od
ified
P
rinte
d
|
African and West African Countries (International Monetary Fund, 2011)
African Countries GDP West African Countries (GDP )
Rank Country GDP (Million of US$)
Rank Country GDP (Million of US$)
1. South Africa 408,074 1. Nigeria 238,920
2. Nigeria 238,920
3. Egypt 235,719 2. Ghana 37,158
4. Algeria 190,709 3. Ivory Coast
24,096
5. Angola 75,508 4. Senegal 14,461
6. Morocco 99,241 5. Mali 10,600
7. Sudan 64,750 6. Burkina Faso
9,981
8. Tunisia 46,360 7. Benin 7,306
9. Ghana 37,158 8. Niger 6,022
10. Libya 36,874 9. Guinea 5,212
Source: Wikipedia, the Free Encyclopedia; Slide 5
Doc ID L
ast M
od
ified
P
rinte
d
|
The National Insurance Commission was established in 1997 by
the National Insurance Commission Act 1997 with the
responsibility for ensuring the effective administration,
supervision, regulation and control of insurance business in
Nigeria and protection of insurance policyholders, beneficiaries
and third parties to insurance contracts.
Regulation of Insurance Sector
Licensing Enforcement actions
Inspections Standard for professional
competence
Monitor capital and solvency Product approval
Approve annual financials Branch Approval
Complaints handling Appointment approval
Consumer education Financial inclusion
Slide 6
Doc ID L
ast M
od
ified
P
rinte
d
| 7
Industry Structure
Strengths and weaknesses of the insurance sector
1. Growing Economy 1. Little innovation to enter untapped area
2. Improved Confidence in financial system 2. Low claims ratio
3.Active and enhanced Regulation 3. Inflation affects disposable income
4. Premium is growing 4.Lack of reliable data
5. Increase in number of policyholders 5. Crime rate affects claims
6. Increase in FDI and Partnerships 6.Legal system/Length court process
7. High penetration of mobile phone subscribers
7. Unhealthy competition
8. Enforcement of compulsory insurance 8. Overconcentration on the corporate side
9. Rising Middle class and high net worth people.
9. Shortage of technical expertise
Doc ID L
ast M
od
ified
P
rinte
d
|
Strength
• Migration to Alternatives to cash • Financial Inclusion • Deepening Stock Market • Increased bank capital • Automated bank services • Risk based regulatory framework • Industry reforms in Insurance
Sector, Pensions & Capital Market. • Pension reforms
Weakness
• Infrastructure Lag • Poor corporate governance • Poor risk management framework • Poor credit level as percent of the
GDP • Insurance & Capital market
challenges
Opportunities
• Sound banking systems • Good international financial ratings • Increased credit to private sector • Available human and material
resources • Effective utilization of the Pension
funds
Threats
• Challenges of the fight against corruption
• Lack of professional manpower • Market volitility • Political uncertainties • Social unrest • Fiscal Discipline
Financial Sector SWOT
Slide 8
Industry Structure
Doc ID L
ast M
od
ified
P
rinte
d
| 9
2 Reinsurance Companies (Minimum Capital N10b
576 Insurance Brokers.
2250 Insurance Agents
48 Loss Adjusters
700 branches of Insurance Cos.
10 companies have majority foreign share ownership.
One Government owned NAIC – for Agric Insurance
Industry Structure
Industry Structure
17 • Life Insurance
Companies ( N2b minimum Capital)
33
• General Insurance Companies ( N3b minimum Capital)
9
• Composite Insurance Companies( N5b minimum Capital)
59 Insurance Companies
Doc ID L
ast M
od
ified
P
rinte
d
|
Increase interest of foreign investors in the market.
Investors are
bring capital, manpower as well as innovation into the market.
Huge reinsurance to London market
Insurance
Company Foreign Interest
ADIC NSIA
Oceanic Insurance
Old Mutual
Mansard Insurance
European Consortium
Prestige Assurance
New India, India
FBN Life Samlam South Africa
UBA Metro Met Life South Africa
Continental Reinsurance
US Private equity
Femi Johnson Marsh (MMC) UK
10
Industry Structure
Foreign Interest in Insurance
Doc ID L
ast M
od
ified
P
rinte
d
|
.
11
COMPANIES WITH LARGEST SHARE OF THE MARKET
Industry Structure
Doc ID L
ast M
od
ified
P
rinte
d
|
Performance
DISTRIBUTION OF PERFORMANCE OF COMPOSITE INSURANCE BUSINESSES BY MARKET SHARE IN MILLIONS OF NAIRA AND PERCENTAGE IN 2012
Chart 12
FIRE 24,990.02
11%
ACCIDENT 30,706.67
13%
MOTOR 45,421.77
19%
W/COMP 1,008.87
0% MARINE 22,558.84
10%
OIL & GAS 37,289.39
16%
LIFE 57,996.13
25%
MISC 13,781.19
6%
Doc ID L
ast M
od
ified
P
rinte
d
|
.
13
Trends in Premium income
Performance
75,619.00
95,005.00 105,378.00
157,138.00
190,309.00
212,156.00
233,135
260,845
0.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
2005 2006 2007 2008 2009 2010 2011 2012
M
i
l
l
i
o
n
s
Year
Total Insurance Premium Income 2005-2012
Insurance Premium…
Doc ID L
ast M
od
ified
P
rinte
d
|
.
14
Industry performance trend
Performance
December
2010
December
2011
December
2012
1
Total Assets (N’b) 585
621
635
Technical Reserves (N”b) 141
170
204
2
Total Premium (N’b) 212
233
260
3
Total Claims paid (N’b) 53
60
75
4
Number of Branches 658
658
655
6
Claims Ratio (%) 20
25
24
Doc ID L
ast M
od
ified
P
rinte
d
| 15
Developments in the Insurance Sector
Insurance companies have started sending in their accounts in IFRS formats.
NAICOM is working closely with FRC on monitoring compliance with IFRS.
Sensitization workshops have been conducted throughout 2012 for CEOs, Board members, CFOs, External Auditors on IFRS.
IFRS
Doc ID L
ast M
od
ified
P
rinte
d
| 16
Developments in the Insurance Sector .
Forced resignation of the Board of one insurance company over issues of Corporate Governance and financial reporting.
Interim Managing Board appointed to control the affairs of the company.
Suspension of another insurance company from taking on New business pending investigation regarding Corporate Governance issues.
Corporate Governance
Doc ID L
ast M
od
ified
P
rinte
d
| 17
Developments in the Insurance Sector
Guidelines on Risk management Framework for insurers and reinsurers was released in February 2012.
Companies are employing various tools for identifying, analyzing and monitoring risk to which they are exposed.
Risk Management
Doc ID L
ast M
od
ified
P
rinte
d
| 18
Developments in the Insurance Sector .
The guideline requires that cover will not take effect until premium is paid in full by the insured.
There has been a considerable improvement in the prompt payment of premiums to insurance companies as a result of this guideline this improved liquidity and cash flow.
No Premium No Cover
Doc ID L
ast M
od
ified
P
rinte
d
|
Enforcement of Compulsory Insurance
MARKET DEVELOPMENT
COMPULSORY INSURANCE AWARENESS CAMPAIGN
Compulsory insurance – mandatory by law for the protection of 3rd parties and the general public. Motor – all vehicle owners. Group life – where 4 or more employees are is compulsory to insure life of the employees. Medical professional liability – doctors , nurses and other health care team in case of medical negligence that cause death or injury. Public building – to which members of the public have access must be insured. Building under construction – for owners of building of more than two floors under construction. Employers liability – for employers of labour. 19
. Developments in the Insurance Sector
Doc ID L
ast M
od
ified
P
rinte
d
|
Agriculture Insurance
Continue to protect policyholders that are farmers by the regulation of the the Nigerian Agriculture Insurance Corporation that manages the Agricultural Insurance Scheme. It covers the risk of flood, drought, fire, storms, outbreak of disease, sale of seeds, fertilizers, pesticides etc. protect against financial consequences of this losses.
Developments in the Insurance Sector
Doc ID L
ast M
od
ified
P
rinte
d
|
Oil & Gas Risk Retention
The local content Act allows companies to retain insurancee risk by up to 70% provided they have the capacity.
Developments in the Insurance Sector
Doc ID L
ast M
od
ified
P
rinte
d
| 22
Developments in the Insurance Sector .
Micro Insurance diagnostic study was conducted to assess the demand and supply of insurance policies to the low income to facilitate financial inclusion
Legal frameworks for Micro-insurance Telecom service providers distribution. micro insurance scheme to support their poverty alleviation programmes.
Micro Insurance
Doc ID L
ast M
od
ified
P
rinte
d
| 23
Developments in the Insurance Sector .
A framework has been developed for Takaful operation. This is in consultation process.
The Commission has also become a full member of the standard setting organization Islamic Financial Services Board(IFSB).
There are proposals for a standalone Takaful company.
Takaful Guideline
Doc ID L
ast M
od
ified
P
rinte
d
| 24
Developments in the Insurance Sector .
The IMF Technical Assistance Mission helped in populating and testing the AML/CFT Risk-based Supervision Matrix and the production of a Draft AML/CFT On-Site Supervision Manual.
NAICOM carried out a review of the AML/CFT Regulations for the insurance industry. The printing and gazetting of the revised regulations.
AML/CFT
Doc ID L
ast M
od
ified
P
rinte
d
| 25
Developments in the Insurance Sector .
10 insurance companies have subsidiaries outside Nigeria spread over West Africa – Cameroun, Cote d’Voire, the Gambia, Ghana, Liberia, Sierra Leone. In Uganda, Kenya.
NAICOM has signed an MOU with the National Insurance Commission of Ghana for information sharing and joint inspection.
Cross Border Supervision
Doc ID L
ast M
od
ified
P
rinte
d
| 26
Developments in the Insurance Sector .
The Complaints Bureau of NAICOM received over 300 fresh complaints yearly, most of which are resolved and settled while the others are on course for resolution.
The Commission have been monitoring the payment of compensations to claimants.
Complaint Bureau & Consumer Protection
Doc ID L
ast M
od
ified
P
rinte
d
| 27
Developments in the Insurance Sector .
Several initiatives to improve the image of the industry includes the TV programme “ Insurance & Claims” sponsored by NAICOM. Media adverts, billboards, radio jingles, distribution of leaflets.
Financial literacy events. School Outreach. Road shows and stakeholder workshops for enlightenment and financial education.
Awareness Campaign & Public Education
Doc ID L
ast M
od
ified
P
rinte
d
|
IMF FSAP Assessment
IAIS ICP assessment to be carried out by an independent consultant experienced in assessing compliance of national jurisdictions with the IAIS insurance core principles. The report will focuses on the identification of key areas for improvement in the regulatory and supervisory approach benchmarked against the international standard.
28
Developments in the Insurance Sector
Doc ID L
ast M
od
ified
P
rinte
d
|
.
29
IMF FSAP Assessment
The IMF assessment concluded that: “NAICOM has made a lot of effort over the past five years to improve the regulatory environment.” IMF marked NAICOM as fully observed in certain insurance core principles and largely observed in several others. Work has started in earnest in the identified areas that require improvement.
Developments in the Insurance Sector
GOAL 1:
To facilitate deeper market penetration in the insurance industry.
30
OBJECTIVE/
INITIATIVES
ACTIVITIES/
ACTION PLAN
EXPECTED OUTCOME
KEY PERFORMANCE
INDICATORS
CHALLENGES/
CONSTRAINTS
Enforcing
compliance with
compulsory
insurance;
Awareness and
enforcement
campaign in
states of the
Federation TV
and advert
publicity.
•Increase insurance policy
protection for individuals.
•Increase Contribution to GDP
from less than 1%
• Close Insurance Gap
• Increase premium income for
insurers and liquidity for payment
of claims.
% level of compliance with
compulsory insurance
% increase in premium
income
•Public
resistance to
insurance.
Ensuring
government
assets insurance
coverage;
Workshop on
insurance of
government
assets
•Adequate cover for Government
Assets . Reduced dependence on
government funds in the event of
losses.
% level of insured
government assets
•Inadequate
budgetary
provision for
insurance
Eradicating fake
insurance agents
and forged
policies from the
market;
Raids and
Prosecution of
offenders.
Collaboration
with NIA, FRSC.
Job creation
•Public hold genuine policy for
which they can be paid claims.
•Out of 10m vehicles only 500,000
have genuine cover.
•50,000 insurance agents to be
licensed.
% reduction in avenues where
fake insurance certificates are
sold (licensing Offices, Ports
etc)
Resistance to
enforcement
Facilitating
financial inclusion
through micro
insurance and
Takaful.
Conduct
diagnostic study
of Micro
Insurance e&
Takaful Issue
•Suitable policy to meet needs of
all including the poor and
vulnerable. Only 3 insurance
companies provide Takaful
insurance products.
% of informed stakeholders Poor standard of
living toward
purchase of
insurance
GOAL 2:
To manage stakeholders expectation in order to ensure transparency and public
confidence.
31
OBJECTIVES/
INITIATIVES
ACTIVITIES/
ACTION PLAN
EXPECTED OUTCOME
KEY PERFORMANCE
INDICATORS
CHALLENGES/
CONSTRAINTS
Conduct reviews
in all insurance
companies on
claims payment
and complaints
handling
policyholder
protection.
Ongoing
TV/Radio
programme on
rights of the
consumer in
Insurance and
Claims Financial
education.
•All genuine claims are paid in a
timely fashion
•No unjustified delay or rejection
of claims.
•Public has more trust and
confidence in the industry.
•Public complaint are
immediately dealt with.
•Complaints bureau received 337
complaints in 2010 and settled
107 to value of N1b.
% of planned interaction
with stakeholders achieved
annually
% of genuine claims paid by
insurance companies.
Time taken to settle claims
Inadequate
understanding of the
principles of
insurance contract
and inefficient postal
system.
Conducting
regular
stakeholder
surveys,
consumer
education
Conduct survey
on public
perception on
insurance
•More informed consumers that
have trust and confidence in the
Industry.
Number of stakeholders
survey carried out in each
quarter
•Public awareness
GOAL 3:
To strengthen insurance institutions by creating an effective regulatory framework
32
OBJECTIVE/
INITIATIVES
ACTIVITIES/
ACTION PLAN
EXPECTED OUTCOME
KEY PERFORMANCE
INDICATORS
CHALLENGES/
CONSTRAINTS
Adopt Risk Based
Supervision and
Risk Based Capital
(Solvency II)
Appoint consultants to draft
supervision manual and risk
Rating model Collaborating
with other regulators and
conduct pilot examination
using Risk Based Approach
•Better assessment of the
industry
•Correlation between risk profile
and scale of supervision
% increase in the number of
sound insurance companies
•Technical expertise
Risk Management
framework
Guideline released
Conduct in-house training of
staff and inspectors.
Workshop for industry
•Instilling a risk culture and
Corporate Governance within the
industry and preparing the
industry for a risk based regime.
% increase in the number of
sound insurance companies
•Change management
Pursue the passing
of the new
Insurance bill into
Law
Facilitate liaison with National
Assembly through the FMF
•More up-to-date legislation in line
with international best practice
Passage of the framework
Insurance Bill into Law
Delay in passing of the
bill
Facilitate
Transition to IFRS
Accounting
systems
Engage consultants. IFRS
training and seminars
conducted Guideline drafted
Less effort and time in the
assessment of financial reports
•Easier access to foreign
investment for insurance
companies.
•- financials are more transparent
with more disclosure of credible
financial position
% of insurance companies’ financials that are IFRS
compliant with international
financial reporting standards
Human Capital
Conduct special
inspection report
and follow up
remedial action
Consultants Inspectors utilized •Proper supervision and
monitoring of Insurance
Companies.
% of cases of insurers with
post inspection issues
concluded (categorization &
rating)
Skilled Inspectors
GOAL 4:
To enhance regulatory oversight by transforming the Commission’s processes, people and systems.
33
OBJECTIVE/
INITIATIVES
ACTIVITIES/
ACTION PLAN
EXPECTED OUTCOME
KEY PERFORMANCE
INDICATORS
CHALLENGES/
CONSTRAINTS
International
Assessment
and
benchmarking
May 2012 IAIS Insurance
Core principles assessment
of Regulators by GIZ
•Identification of key areas
of improvement in our
regulatory approach.
% score of good observations
by Assessors
Developing a
performance
management
framework
Design and implement the
performance management
system
•Environment where
employees can excel.
Implementation of
performance management
system
•Change
management
Staff
Competency
framework;
Job description analysis
and profiling by all
directorates
•Internal efficiency Completion of competency
profile
•Change
management
Deploying ICT
into business
processes,
Develop an industry portal
Automation of HR and
Finance and account
process.
•Enhance internal
effectiveness and service
delivery Technology
Industry portal developed and
quality of information obtained.
Quality of financial information
and accounting systems.
IT Infrastructure
Developing
effective
succession
and manpower
planning.
Staff deployment
Staff recruitment
Leadership training
programme
•Enhance effectiveness of
regulatory process
Design of training and date
training is concluded
Human Capital
Geographical Opening of new zonal •More national coverage Number of zonal offices Human capacity
GOAL 5:
To optimize revenue collection and effective management of the resources available to
the Commission.
34
OBJECTIVE/
INITIATIVES
ACTIVITIES/
ACTION PLAN
EXPECTED OUTCOME
KEY PERFORMANCE
INDICATORS
CHALLENGES/
CONSTRAINTS
Effective
assessment
and timely
collection of
levies
Collection of
levy from all
insurance
operators
High collection
rate
•Levy to support policyholders
protection fund and Road safety
Fund and hit & Run
Compensation fund
100% levy collected for
insurance returns approved
(including fines imposed for non
compliance
•Funding
Expanding the
revenue base of
the Commission
Identify the
number of
additional
source of
revenue
available
•Other source of revenue
identified and exploited
Number of revenue sources
identified.
Install best
practice internal
control systems
Deployment of
internal control
system
•Efficiency in internal regulatory
processes
Internal control system installed •Funding
Doc ID L
ast M
od
ified
P
rinte
d
|
Areas of Opportunities
Insurance Sector will require the assistance in the following areas:
i. Investment and asset Management : Improving profitability by creative investment in real estate power and capital market.
ii. Technology: to ease operations, efficiency speed and customer satisfaction. Online real time transaction processing.
iii. Human Capital: Recruitment of people with the right attitude, with the right exposure, with technical expertise (e.g. Actuaries).
iv. Legal Drafting: Joint venture, acquisition, due diligence, Share purchase agreements, regulatory, claims litigation.
5/7/2014 35
Doc ID L
ast M
od
ified
P
rinte
d
|
v. IFRS conversion: Need for firms who have experience from jurisdictions where IFRS is already in place.
vi. Business and product Development: Strategy, innovation, identification of market opportunities.
vii. Governance: Good corporate governance to prevent unfair treatment to the insured. Also the areas of Enterpise Risk management.
viii. Loss prevention: Safety measure, security system.
36 5/7/2014
Areas of Opportunities
Doc ID L
ast M
od
ified
P
rinte
d
|
Foreign Investment points
Ownership
Profits
Reinsurance
Registration
• Foreign reinsuers not currently required to hold our licence to take business but approval to reinsurer is required for certain risk e.g. Oil & Gas.
• Profits and dividends can be repatriated after tax has been paid
• No limit to ownership can own 100%
• New licence or acquisition of an existing company.
Doc ID L
ast M
od
ified
P
rinte
d
| 38
Conclusion .
Despite its challenges the Nigerian insurance sector is growing at a fast rate. The fact that the insurance gap is very wide right now is an indication of the vast growth opportunity. The industry will need services in the area of manpower & skill, investment capabilities, innovation, IT systems. Several big names in the international market are already gaining entry to seize the opportunities and there is an ambitious agenda put in place to continue to deepen the insurance market.