Foreigners Taking Over Nigerian Insurance Industry

• Foreigners Taking Over Nigerian Insurance Industry

Foreign investors have been beaming their searchlights on the juicy firms in the Nigerian insurance industry and substantially taking over ownership of many of them in recent years.

This development, which is due to myriads of reasons, is on the increase even as stakeholders patiently watch how it will impact the sector in the nearest future.

Before the last mandatory recapitalisation in the sector in 2007, most of the insurance companies were indigenous underwriters, had less capital, suffered negative perception and operated on a low-scale.

Life, non-life and composite firms were asked to shore up their capital from the initial base of N150m, N200m and N350m to N2bn, N3bn, and N5bn, respectively. Reinsurance firms were asked to recapitalise from N350m to N10bn.

But at the end of the exercise, the underwriting firms that successfully scaled the recapitalisation hurdle were able to raise their capital to several billions of naira, and were transformed into mega firms.

Their new status began to attract foreigners into the sector, who started by buying small equities in the companies and graduated to taking over the insurance firms.

In 2013, the then Commissioner for Insurance, Mr. Fola Daniel, had disclosed that foreign equities rose to 62.8 per cent in at least seven insurance firms, while many investors were also negotiating with other local underwriters on how they could invest in them.

The new investors included NSIA Participations S.A Holdings,which acquired 96.15 per cent in ADIC Insurance, a former subsidiary of Diamond Bank Plc; Mutual & Federal Insurance Company, South Africa, which acquired 70 per cent of Oceanic Insurance Company Limited, formerly owned by Oceanic Bank Plc; Old Mutual Nigeria Services Company (Old Mutual Nigeria)also acquired 70 per cent of Oceanic Life Assurance Limited, a subsidiary of Oceanic Bank.

Others are UBA Capital Holding Limited/MMI Holdings, which had 50/50 per cent of UBA Metropolitan Life, formerly owned by United Bank for Africa Plc; FBN Holdings/Samlam Group SA, had 65/35 ownership of FBN Life, formerly owned by First Bank of Nigeria; Assur Africa Holding acquired 67.68 per cent of Mansard Insurance, formerly owned by GTBank; while New India Assurance Company had 51 per cent stake in Prestige Assurance Plc.

“Companies with foreign equities increased in the insurance sector, generating substantial foreign direct investment,” Daniel had said.

But the story of many of these firms has changed in recent years with new investors coming in after the recapitalisation.

For instance, AXA SA acquired majority stake in Mansard Insurance in 2014 and changed the firm’s name to AXA Mansard Insurance; Metropolitan International Holdings (Proprietary) Limited acquired 100 per cent of UBA Metropolitan Life and changed it to United Metropolitan Nigeria Life Insurance Limited; Old Mutual completed the firm’s acquisition from Ecobank Group (after the bank acquired Oceanic Bank) and changed its name to Old Mutual Nigeria.

According to the regulator, the National Insurance Commission, no fewer than 12 foreign investors have ventured into the country to acquire new firms since 2014.

More acquisitions

The current Commissioner for Insurance, Alhaji Mohammed Kari, said the Nigerian development plan,Vision 2020, described the insurance sector as a grossly untapped opportunity with low market penetration.

He said that foreign investors, having noted the great opportunities, were attracted by the huge potential in the Nigerian insurance space

“There were three foreign acquisitions in the sector in 2014; two in 2015; five in 2016; and two companies are now in progress,” Kari stated.

Some of the investors, according to him, are AXA, Prudential, Liberty, Swiss Re, Sunu Group, Saham and Allianz, among others.

Kari stated that the growth of the Nigerian insurance industry was hinged on the right products, innovation, prompt claims payment and healthy competition between local players and their foreign counterparts.

According to him, the presence of foreign insurers in the Nigerian market is another incentive to boost penetration, technical capacity and service delivery.

As a result of increased risk coverage in the country, Kari said there would likely be an increase in the minimum capital requirements and potential reduction in qualifying capital of insurance companies.

He explained, “We expect this to lead to further consolidation and stability in the industry, which will subsequently create an influx of foreign investments. After such an exercise, we will have no reason to continue with the suspension of issuance of new operating licences.

“For the period since that policy was introduced, there has been no local mergers and acquisitions, and I believe that the market has lost an excellent opportunity to strengthen itself from within. It is no surprise that big international players are taking position in our market; they obviously see something you don’t. In the field of fair play there, is hardly more than a couple of indigenous companies that can compete with them.”

The commissioner noted that Nigerian insurance institutions must review and where necessary, enhance their capital, risk management and governance in order to survive the interesting future ahead.

Some of the challenges the local firms have been grappling with include dearth of human and financial capital, and unethical way of doing business, popularly called rate-cutting, among others.

According to a report by the Marine Insurance Committee of the Nigerian Insurers Association, the country is being deprived of billions of naira as a result of the dearth of professionals in marine insurance in the country.

This pushes most of the premiums coming from the highly risky business in the industry to foreign reinsurers.

The commissioner stated that the situation called for the Chartered Insurance Institute of Nigeria, as a professional body, to reinvent itself, update its curriculum to either adopt or adapt contemporary best practices for the overall benefit of the profession.

Risk-based supervision

NAICOM has said it will implement the risk-based supervision in 2018, which will restrict the business the insurance companies can do to the capital they have.

That means, companies that do have the specified capital will be exempted from doing blue chip businesses such as aviation, marine, and oil and gas, among others.

This is making a lot of insurance companies to look for foreign investors to assist in enhancing their capital in order to meet up with the emerging challenge.

It is worth of note that these businesses rake in premiums worth billions of naira, but can result in claims worth billions of naira if a loss occurs.

Under the RBS, the insurance companies will no longer be able to hide under a consortium to underwrite bigger risks, but will be restricted to just doing small insurances like motor, tricycle and other less risky businesses.

That also means that when the compulsory insurance policies are enforced, the firms with low capital will be exempted from benefiting from some of the potential businesses.

Speaking on the RBS, the Deputy Commissioner, NAICOM, George Onekhana, explained that it was a tool used by supervisors in the allocation of resources to the examination of insurance entities, based on their risk profile and the effectiveness of arrangements made to manage relevant risks.

“In addition to limiting the choice of insurers that receive attention, it also restricts the scope of work on select insurers to areas in which material weaknesses are perceived to exist,” he stated.

While noting that it was important for the underwriters to face the reality, he said it would be wise to pay early attention to capital adequacy issues.

As the economic power of the private sector businesses continues to grow, Onekhana said the number of laws regulating their activities would also increase.

“In broad terms, these laws typically serve one of two objectives: to promote market competition and control the market power of financial institutions over customers, or to mitigate the adverse effects of business activity on individuals and other organisations,” he added.

Shareholders

The Chairman, Progressive Shareholders Association, Mr. Boniface Okozie, said the insurance sector had been lagging behind for so long and that if foreign investors showing interest would lift it up, it was a welcome development as long as the existing shareholders would not be short-changed.

“It is an opportunity to develop the insurance sector like the banking sector, because in other parts of the world, insurance firms acquire banks; but in this part of the world, it is the banks that acquire insurance companies; so if the foreigners want to penetrate the market and it will uplift the market, that is okay,”he stated.

According to him, if foreign investors can move insurance stocks from single digit kobo to naira value, people will be happy for it as long as it will guarantee dividend.

Okozie said a lot of shareholders were disappointed because since they bought the shares of insurance companies after the last recapitalisation, they had been receiving ridiculously low returns or had not received any dividend in many instances.

As a result, he observed that most insurance companies that did right issues recently did not have meaningful subscription from shareholders.

He stated, “Today, if insurance companies come to the market to do right issues, how many will participate? If they do public offering, how many will participate? So a lot of people are looking for big time investors who have the money to develop the sector and the foreigners have the money.

“Since our people are running away from our insurance sector, let there be foreign penetration that will help us and give a boost.”

Foreign capital

To become one of the chip-blue firms that will be entrusted with the contracts of insuring the biggest risks in the country, the underwriting firms will have to be able to substantiate their capacity claims with huge capital base.

But getting the money locally is actually a challenge to them, bearing in mind the economic crunch in the country, which is leaving the operators to resort to foreign investors’ help.

The foreign investors have what it takes in terms of huge financial, human and technical capacities to meet the important needs of the indigenous firms.

For instance, the recent investors,who ventured into the country, have conveniently injected huge funds into the insurance firms they bought, which the underwriters could not raise locally.

For instance, AXA SA acquired majority stake in Mansard Insurance Plc for $246m in 2014; South Africa’s Liberty Holdings acquired 75 per cent stake in UNIC Insurance Plc for $12m in 2017; Sunu Assurances Vie Cote d’Ivoire, acquired 28.2 per cent equity stake in Equity Assurance Plc in a deal valued at N1.25bn in 2016; Germany’s Allianz paid $35m for 98 per cent stake in Ensure Insurance, to mention a few.

The Managing Director, Niger Insurance Plc, Mr. Kola Adedeji, said the Nigerian insurance sector needed foreign inflow to meet its capital requirement.

According to him, the minimum capital for any company to operate should not be less than N10bn, because liquidity is very important in the underwriting business.

While mentioning the oil business, he said about 90 per cent of oil and gas premium in the country was ceded to foreign reinsurers because of capacity issue, adding that one oil rig was worth several billions of naira, and there were several oil rigs.

“If anyone takes such business and does not have sufficient capital and a major loss occurs, the balance sheet of the company will be wiped out if care is not taken,” he stated.

The managing director, however, noted that it was not easy for the underwriters to raise funds locally or at the stock market due to the financial constraints in the country, among other reasons.

Adedeji explained, “If a firm goes to the stock market to raise funds and it does not meet certain threshold, the offer will be cancelled when it is finished and the money will be returned to the subscribers; but unfortunately, all the money the firm paid upfront to the Securities and Exchange Commission will not be given back to the company.

“For instance, if you want to raise N1bn, you must be able to raise N250m on your own; but then, you would have paid the amount to the SEC ahead of the N1bn you envisaged. If the offer is not fully subscribed, all the money paid to SEC based on expectation will not be returned, because before the SEC gives you approval, you will pay some fees to get approval to go to the market.”

Capital flight

Presently, about 70 per cent of insurance business in the country goes abroad through reinsurance deals.The reason is not farfetched – the foreign reinsurers have a stronger capacity compared to the local players.

NAICOM launched the first phase of the Marked Development and Restructuring Initiatives in 2009 to create awareness on the existence of five mandatory insurance policies in the country’ statutory laws.

It plans to enforce the mandatory policies through the MDRI, with the objectives of driving insurance penetration and boosting the contribution to the country’s Gross Domestic Product.

The President, Nigerian Council of Registered Insurance Brokers, Mr. Shola Tinubu, said key offshore investors in insurance were spreading to Nigeria.

If the foreign investors have something beneficial to add to the local knowledge, he said that would be okay.

But he noted that in terms of local content, the Nigerian Content Act that provided that the country must give some business to indigenous firms also made it mandatory for the companies to have at least 51 per cent Nigerian ownership.

He explained that the law was framed that way to create wealth and work for Nigerians.

“So when we also want to create compulsory insurance, I don’t think we should give it to offshore companies. We are happy when they are investing; but we need to realise that after a few years, they will not be investing but will just be taking dividends out,” Tinubu stated.

According to him, forcing all Nigerians to insure their group life with the foreign companies operating in the country is not appropriate.

He said that it was not illegal for foreign insurers to set up in Nigeria, but noted that they must sell value.

“But if we are going to create a special market, let us create it for the local content guys; the issue is that it is the government that is creating compulsory insurance; it should not be creating it for offshore companies,” he added.

Tinubu noted that the offshore companies coming in were good ones and that the local operators would learn from them, but they would also learn from the local insurers because many of the foreign investors coming into the country were burning their fingers.

“They are seeing that things are not as easy as they thought; the terrain is different. When they are coming in, they are looking at the 180 million Nigerians, but now seeing that the 180 million people don’t want to buy insurance at all,” he said.

Investors’ experience

Experts are, however, of the view that the foreign investors who have come into the country have not really done better than the indigenous firms, despite all the capital they came in with.

Some observers are also of the view that the investors may not have done their research very well before venturing into the unknown Nigerian market.

For instance, a foreign investor, Greenoaks Global Holdings Limited acquired Union Assurance Company Plc from Union Bank of Nigeria Plc in 2014, injected $21.8m in the company, changed the name to Ensure Insurance Plc but exited from Nigeria in 2016. The Allianz Group subsequently acquired 98 per cent of Ensure Insurance from Greenoaks Global Holdings.

The Director-General, Chartered Insurance Institute of Nigeria, Mr. Richard Borokini, stated that the Nigerian environment was a peculiar one and investors had to understand the peculiarity of the environment.

He said the coming in of foreign investors could be advantageous in areas like better corporate governance and product innovation, among others.

“But for those foreign investors that have come in, we have not really seen the impact,” he added.

According to him, every economy wants Foreign Direct Investment but the FDI should come in sectors that are required.

“The issue is that do you need foreign direct investment in insurance? Some years back, we did a recapitalisation. Although with the current devaluation of the naira, a lot of the capital base of insurance companies has been depleted if you have to convert it to dollars,” he said.

According to him, there may be a need to actually call in for more capital even if it is coming from abroad.

“Largely, if you look at it, the first 10 insurance companies are still companies that are locally bred, but that is not to discourage foreign investors from coming in,” Borokini stated.

Because insurance penetration in Nigeria is low, he said there was the potential for more operators to come in.

“So let them come in; if they are able to bring innovation to increase insurance penetration, it will be good. However, in terms of whether those that have come in have made any great impact, we are still watching,”Borokini added.

Points of attraction

Asides from seeing the Nigerian market as an emerging one with a lot of potential, the huge population, which is capable of generating huge premiums for the operators, has been identified as a major point of attraction to the foreign investors.

Local players are also seeing more benefits from the incursion of their foreign counterparts, asides helping them to meet their capital requirements.

The Regional Chief Executive Officer, Africa, Allianz Group, Coenraad Vrolijk, said the group viewed the continent as one of the important future growth markets, adding that it was now present in 17 countries across the region.

Vrolijk noted that Nigeria was a fast growing country with a population of more than 180 million citizens, and that it was the country with the biggest Gross Domestic Product on the continent.

He stated, “Nigeria is one of the most dynamic economies in Africa. The acquisition of Ensure Insurance Plc gives us full access to this key insurance market in Africa and marks a major milestone for Allianz’s long-term growth strategy on the continent.

“This new step of development will allow us to offer the best products and services to Nigerian customers in both personal and commercial lines. In addition, as we grow our excellent African teams, we are laying particular emphasis on hiring and developing local talent.”

Speaking on the Sunu Group’s foray into Nigeria, the Managing Director, Equity Assurance Plc, Mr. Moruf Apampa, said the group was bringing its core values of professionalism, customer-centricity and respect for the individual, which were fundamental to its business operations, to the Nigerian market.

He noted that the group was present in 22 locations across 14 countries in West and Central Africa.

“As with all of its member companies, Equity Assurance will have access to the Sunu Group’s operations hub (located in Cote d’Ivoire), which provides both technical and business support services, including specialty functions such as product development, actuarial services, technology and branding, among others,” he stated.

According to him, Nigerians will enjoy fresh and innovative insurance products and solutions as the firm leverages the vast knowledge capital, partner network and expertise that have over the years been garnered across its various locations.

Distressed firms

After the emergence of the newest insurance company in Nigeria, FBN Insurance Limited, in 2010, NAICOM suspended the issuance of new operational licences to investors.Interested investors were left with the only option of acquiring the existing firms as they could not get licences to start new insurance companies.

Some firms that secured so much funds after recapitalisation had sooner than expected mismanaged the resources and are now having serious liquidity problems.

NAICOM had thought the foreign investors would acquire the distressed underwriting firms in the country, pump capital into them and revamp their operations. However, the foreigners have shunned these companies, some which have now become moribund.

The foreign investors have shown that they are not interested in helping the government to achieve the revival objective; for them, their venture is simply business.

One of the concerned companies taken over by the insurance regulator and being run by interim management is Spring Life Assurance Plc. In November 2010, NAICOM suspended its operational licence after the regulator observed an eroded capital below the statutory minimum required to operate.

The commission also suspended the management of Investment and Allied Assurance Plc for insolvency, financial misappropriation, abuse of corporate governance provisions and claims default.

In August 2012, it suspended the operations of Alliance & General Insurance Company Limited and Alliance& General Life Assurance Plc for non-rendition of accounts, misrepresentation and non-disclosure of liabilities, non-remittance of premiums and commissions, and corporate governance abuses.

These companies have remained under the regulatory intervention of the commission and have become more or less moribund.

Though investors and policyholders’ investments have been trapped in the companies over the years, the commission has refused to liquidate them for different reasons, perhaps still hopeful of getting investors.

Prospects

Presently in the country, there are 28 non-life insurance companies, 14 life insurance companies, 13 composite firms, two reinsurance companies and two takaful insurance firms.

The Chairman, Nigerian Insurers Association, Mr. Eddie Efekoha, said there was prospect for the country’s insurance industry.

“If you look around, you will see that a lot of our friends from outside Nigeria are looking at Nigeria; and if they are doing so, then you don’t need any one to tell you that there is something good about us or a potential they are seeing. It then means that those of us here should equally watch out,” he stated.

He added that the government was beginning to work on how to enforce the compulsory insurances in the country’s laws.

If the enforcement is effective, he noted, the insurance sector would be greatly transformed because more people would have insurance policies and there would be more premiums.

“For us as operators, we should roll up our sleeves and see how we can take advantage of the opportunities in our industry,” Efekoha added.