With a debt already close to 70% of its GDP, the IMF projects that Kenya plans to borrow $12.4bn from foreign sources by June 2022. This, at ... a time when the country is at a high risk of debt distress and subject to zero limits on non-concessional borrowing. But the distress is also having a cause and effect on its population.
Axa, Allianz and Prudential are among foreign insurers that may seek to expand their presence in Nigeria, writes Aderonke Akinsola, an analyst at Chapel Hill Denham in Lagos.
The Nigerian National Insurance Commission (NAICOM) on July 23 gave more details on the minimum capital requirements for insurers and reinsurers announced in May.
- The new NAICOM circular says that all mergers and acquisitions will have to be completed at least 60 days prior to the deadline of June 30, 2020 to be counted.
- Refinancing plans have to be submitted to NAICOM by August 20, 2019.
That means the window of opportunity for consolidation in the sector is narrowing.
Chapel Hill Denham analysed financial data on 41 out of 57 insurance and reinsurance companies in Nigeria and found that only five meet the new requirement: FBN Insurance, Custodian & Allied, Zenith General, Wapic General and Leadway.
- Some composite insurers, covering both life and non-life, are likely to have to choose one or the other line to stay in business, the research says.
Big players like Axa Mansard and Prudential Zenith Life will comfortably be able to comply through capital injections from shareholders, the research says.
Others may be obliged to seek to raise equity capital – but those with shortfalls of more than 5b naira ($13.8mn) will find it hard to do so in the current weak market environment. These are the most likely to seek a merger, opening a door for foreign acquirers.
- The composite insurers with the biggest shortfalls, according to the report’s figures, include Goldlink, Standard Alliance, Niger Insurance and Great Nigeria.
- In life insurance, African Alliance and Capital Express Insurance have shortfalls of over 5 billion naira, as do Staco Insurance, International Energy, SUNU Assurance and Guinea Insurance in non-life.
- The new rules exclude micro-insurers and takaful operators.
Nigeria joins African countries such as Kenya, Egypt and Ghana in revising insurance financing requirements.
This is positive for increasing insurance penetration argues Chapel Hill Denham, with tighter regulation having the potential to raise public confidence.
- Chapel Hill Denham predicts a reduction in the number of insurers in Nigeria to at most 20 from 57 currently.
- Foreign insurers could double, from around 16% to one-third of the industry..
Infrastructure investments to meet the needs of Nigeria’s growing urban population could drive insurance demand as businesses and income levels grow, Chapel Hill Denham says.
- Low capital levels have limited the ability of Nigerian insurers to take on big ticket risks in industries such as oil and gas, marine and aviation.
- Chapel Hill Denham says that the new rules will bring Nigeria more closely into line with insurance capital requirements in China.
- Technology, in combination with public education, could also improve the affordability and accessibility of insurance products via digital channels such as mobile, the firm says.
Bottom Line: A spate of deals is in prospect as foreign insurers act fast to increase their Nigeria presence.
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