Nigerian regulator says tougher capital requirements could end premium flight

The Nigerian regulator Naicom has been justifying its position on higher capital requirements, by highlighting the amount of premium leaving the country. Naicom’s director of policy and regulation, Pius Agboola, said the ongoing recapitalisation (which will require some insurers to triple their capital) is ultimately to position the sector to be able to handle large transactions in Nigeria as well as to end capital flight and therefore support economic development of the country. As an example, The Standard reported that local players are set to lose out on 72% of the insurance business of the Dangote oil refining company. It reported that the company, which has insured value estimated at $6.8bn, may be insured by foreign operators when it becomes operational, because of the low financial capability in the Nigerian market. In addition, local players could see another $8bn of insurance business from energy companies move to foreign insurers, due to their current low capital base and lack of underwriting technical capacity. Mr Agboola told reporters that the local insurance market had continued to lose a substantial part of the income that was supposed to grow the industry because of its low capital base. He added that among the business currently approved in principle by the regulator to be taken abroad, is aviation refuelling liability insurance from II Plc (formerly Mobil Oil Nigeria Plc) with the sum insured valued at $1bn. Mr Agboola expressed regret that the local insurers had the capacity to insure only 10.03%, while 89.97% would be ceded to foreign insurers from mainly European and American markets. He added that similarly, the sector is losing another risk valued at just over $7m for third-party nuclear liability insurance for the Centre for Energy Research and Training, in which indigenous insurers have capacity to insure only 0.05% of the entire business, with 99.95% to be taken abroad. He also said a combined property damage/machinery breakdown/liability terrorism/political violence risk cover for Sahara Power (Egbin Power Plc), with the sum insured valued of $3.1bn would be 53.7% insured abroad, while 46.3% would be insured locally. More positively, Mr Agboola said the Nigerian National Petroleum Corporation retained 78% of its insurance portfolio valued at about NGN99.5bn with local insurers, while 22% was taken abroad. Also, Chevron Nigeria Limited insures 75% of its energy portfolio valued at NGN14.3bn with local players, while 25% is taken abroad; and Mobil Producing Nigeria Limited insures 70% of its energy /physical damage and OEE cover valued at $14.1bn with local insurers, while 30% is taken abroad. Mr Agboola also said Lafarge Hoicim insured 68.73% of combined property damage/business interruption and public liability, valued at about $564.9bn as sum insured, with local insurers while 31.27% was taken abroad; and Dangote Fertiliser insured 60% of its construction/erection all-risk and third-party liability risk, valued at $1.13bn with local underwriters. Acting commissioner for insurance, Sunday Thomas, said even though operators might not have funds for the recapitalisation of their respective companies, the onus was on the regulator to set the standards that would strengthen the insurance companies’ capacities. He said: “The process is to enable the sector to retain insurance businesses instead of allowing it to go outside the country, turn the image of the insurance market, strengthen the financial base of the companies and increase the sector’s contributions to gross domestic product of the country, among other benefits. “We have the mandate to ensure that the recapitalisation throws up more solid companies. Our hands are open to welcome investors in new companies or existing companies.”

Nigerian regulator says tougher capital requirements could end premium flight

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