Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr Oscar Onyema, has said most insurance companies licenced to operate in the country are largely undercapitalised.
Mr Onyema made this declaration when he addressed participants at the Insurance Sector Forum held on Tuesday at the Stock Exchange House in Lagos.
During his speech, the NSE chief commended the National Insurance Commission (NAICOM) for directing insurers to increase their minimum paid-up share capital requirement.
According to him, the ongoing recapitalization and consolidation exercise is expected to significantly impact the industry and equally present new opportunities in mergers and acquisitions as well as private equity and public offerings.
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He informed the audience that an estimated capital of N200 billion is expected to be injected into the underwriting sector in Nigeria in the post-recapitalization era with a 400 percent increase in the minimum capital required for life, 333 percent for non-life, 360 percent for composite and 200 percent for re-insurance.
Mr Onyema noted that the undercapitalisation of insurance companies in Nigeria has limited their ability to take on big ticket in-country risks, as is often required in the oil & gas, marine and aviation sectors.
“As at Q3 2019, the insurance sector contributed less than one percent to the Gross Domestic Product (GDP) of Nigeria.
“Having a penetration rate of 0.31 percent and an insurance density of 6.2 percent, the Nigerian insurance industry still lags behind its African counterparts, with South Africa having a penetration rate of 14.7 percent, Kenya 2.8 percent, Ghana 1.1 percent and Egypt 0.6 percent,” he said.
He called on players in the space to tap into the various opportunities in the NSE, saying the local bourse provides a platform to support listed corporates to meet their business objectives, whilst also implementing strategic initiatives that have improved investor confidence.
According to him, “This has allowed listed companies to be positioned on the exchange as attractive investment,” noting that, “With the ongoing recapitalization exercise, we will encourage the insurance operators by providing a special window to fast-track the approval process, provided the operators have demonstrated high standards of corporate governance, deep social impact, high regulatory compliance and enhanced returns for their shareholders.”
“Post recapitalisation, we look forward to having our first insurance company listed on the Premium Board of the NSE opportunities,” Mr Onyema stated.
The NSE chief expressed optimism that the recapitalisation policy of the industry regulator would enhance performance, bring about efficiency, innovation and profitability, emphasising that “the industry needs significant support to unleash its growth potential.”
“At the NSE, we see close parallels between this recapitalisation and that of the banking sector in 2005. The immense growth seen in banking industry in large part can be attributed to successful capital raised through the capital market.
“The crucial question before us is unravelling how to replicate similar successes within the insurance space and leverage the platform of the exchange to successfully raise rightsized capital to fuel accelerated growth,” he said.
According to him, the insurance industry presents perhaps the most remarkable investment case of any industry in Nigeria and despite present challenges, it presents numerous opportunities for enhancing the economic fortunes of this country.
“Foreign investors, recognising these opportunities have acted accordingly with the likes of AXA, Prudential, Liberty, Swiss Re, SUNU Group, Saham Group, taking strategic positions in the industry,” he said.