Of Insurance Sector and Growth Trajectory

Despite the upheavals in both global and domestic business environment, insurance sector going by its overall performance last year, has maintained a steady growth in premium generation, assets base and market size, as shown by latest statistics released by NAICOM, writes Ebere Nwoji

In its continued struggle to hit N1 trillion market margin in premium income generation set by the Market Development and Restructuring Initiative (MDRI) of the National Insurance Commission (NAICOM), the insurance sector is currently close to accomplishing this goal with the industry’s gross premium income rising to N726.2 billion as at last quarter 2022 according to recent statistics on the sector performance released by NAICOM.

Analysts see this as a very significant growth compared to N260 billion premium income status of the sector at the time of launching the MDRI initiative, which set the trillion Naira market goal.

The industry according to the commissioner for insurance Mr. Sunday Olorundare Thomas is currently shifting to a new landscape in all ramifications having grown its asset base to N2.33 trillion with continued improvement in retention propensity and increased market size and profitability.

The sector’s premium income growth represents 36.3 per cent growth quarter-on-quarter and 17.8 percent year-on-year. The growth in assets figure signifies expansion at the rate of 2.4 per cent, quarter-on-quarter and at 4.4 per cent year-on-year. This, when placed side by side with the sector’s performance in first and second quarter of the year, shows that the industry is not doing badly. 

Elated by this development, NAICOM said by all standards of measurement and assessment the Nigerian insurance sector is shifting to a new landscape riding on the van of technological advancement.

The commission said this is in spite of macro economic challenges, which have bedeviled businesses in Nigeria.

The sector, it said, started this journey of positive shift from the on set of year 2022, having recorded a year-on-year growth rate of 6.2 per cent at the end of first quarter of the year.

The commission also said the market size of the sector was not left behind in this journey of trajectory growth having grown at 15 per cent in the same period, thus standing out as one of the fastest sectoral assets expansion in Nigeria during the period.

For the second quarter performance, NAICOM said the sector recorded a gross premium income of N369.2 billion, indicating a 20.1 per cent growth rate compared to the same period in 2021.

NAICOM also said there was an impressive 65.0 per cent quarter on quarter growth as continued steady growth from the first quarter of the year correlating with similar performance of the second quarter period.

According to the commission, some quality improvements in the market indicators including growth, claims settlement and profitability shows that the market could be adjudged as sound and stable just as the stance of the market deepening remains optimistic.

It said in terms of market size, the sector recorded an increased rate of growth of about 11.9 percent quarter on quarter with a total asset of about N2.3 trillion. It added that the industry’s financial position revealed a total of N1.2 trillion in assets of non-life business, while the life business contributed N1.1trillion. Further breakdown of the statistics the commission said reveals that, out of the total gross premium income, non-life segment maintained its primacy at 59.3 percent.

Motor Insurance stood third at 14.8 percent while Marine & Aviation, Gen. Accident and Miscellaneous reported a share of 12.3 percent, 10.9 percent and 8.9 percent respectively. Life business on the other hand recorded 40.6 percent of the insurance market production as its share contribution, gradually closes up. The share of annuity in the life insurance business stood at about 24.7 percent while individual life held a major driver position at 41.8 percent of the premium generated during the period. In terms of claims, NAICOM said the industry recorded 0.2 percent growth in gross claims during the second quarter compared to the corresponding period of 2021.

“The industry statistics for gross claims in quarter two of 2022 stood at N174.8 billion, representing 47.3 percent per cent of all premiums generated during the period. This occasion reflects the professional underwriting capacity of the industry as driven by the intensified regulatory activities of the Commission,” NAICOM said.

It further said the net claims paid on the other hand stood at about N148.2billion, signifying 84.8 per cent of all gross claims reported during the period.

Life insurance business, it said, recorded a near perfect point of about 88.90 percent claims settlement, as against the reported claims while non-life segment stood at about 76.8 per cent.

The commission further revealed that the insurance market indeed remained profitable during the year, recording an overall industry average of 56.9 percent, maintaining a relative position of 57.7 per cent recorded in the corresponding period of preceding year.

The non-life segment loss ratio stood at 43.6 percent while the life business stood at 68.8 per cent, depicting a less profitable scenario comparatively over the same period. Consequently, the industry recorded an expansion to about N2.3 trillion Assets at the end of first half year 2022, growing at a size of 12.0 per cent YoY.

Commending on this, NAICOM’s Deputy commissioner for Insurance Technical, Sabiu Abubakar, while speaking at the second edition of   the Chartered Insurance Institute of Nigeria’s (CIIN) 2022 Business Outlook held in Lagos, concluded that the insurance industry held a commendable market average retention of 73.3 per cent in the first quarter of 2022.

He said the sector in the second quarter of 2022 recorded a gross premium income of N369.2 billion, indicating a 20.1 per cent growth rate compared to the same period in 2021.

It noted that there was an impressive 65.0 per cent quarter on quarter growth as continued steady growth from the first quarter of the year correlates with similar performance of the second quarter period.

Breakdown by business classes

Giving further breakdown of the statistics the commission revealed that, out of the total gross premium income, non-life segment maintained its primacy at 59.3 per cent. Motor Insurance stood third at 14.8 per cent while Marine & Aviation, Gen. Accident and Miscellaneous reported a share of 12.3 per cent, 10.9 percent and 8.9 per cent respectively.

Life business on the other hand recorded 40.6 per cent of the insurance market production as its share contribution, gradually closes up. The share of annuity in the life insurance business stood at about 24.7 percent, while individual life held a major driver position at 41.8 percent of the premium generated during the period.

For the fourth quarter, the commission said the gross premium figure in the fourth quarter represents a growth proportion of about thirty-six per cent quarter on quarter and indeed, about 18 per cent (17.8 percent) year on year, adding that this was a remarkable situation compared to the real growth (3.5 percent of Gross Domestic Product (GDP) over the same period and could attributable to consistent regulatory  measures being carried out by the Commission. 

At N726.2 billion premium generation at fourth quarter 2022 analysts said the sector achieved over 100 percent growth from the day the MDRI, which initiated the trillion naira market dream was launched in September 2009 to date. Analysing the contribution of each class of business during the last quarter of the year, the commission said Motor insurance yielded N62.2 billion, fire N93.6 billion, General Accident N46.1 billion, Marine contributedN51.0 billion oil and gas N125.7 billion miscellaneous N39.7 billion bringing the total premium of the industry generated within the period to N726.2 billion.

The commission noted that the proportional significance of Life in the industry sustained a positive course in recent times reflective of the consumer’s confidence and awareness. In-depth analysis of the Non-Life segment of market showed Oil & Gas business sustaining its market share dominance at 30.25 percent increasing by two point 2.4 per cent.

According to the commission, when compared to the previous quarter, the figure posted by Fire Insurance came a distant second (22.2 percent) maintaining same pattern of contribution to the gross premium pool of the market while Motor Insurance 14.9 Marine & Aviation 122 per cent General Accident 11.1 per cent and Miscellaneous 9.5 followed in that order.

On the other hand, it said life business was driven by Individual Life portfolio at 38.6 percent even as its relative contribution fell by about 2.6 percent compared to third quarter 41.6 percent.

In a contrasting path to the previous quarter, group life followed by about 34.5 per cent growth per cent while annuity business contributed gross premium income of  26.9 per cent during the period.

The commission noted that individual life, which contributed a large chunk of all premiums generated is the driving force behind the growth in the life segment closely followed by the group life portion of that corner of the market with significant improvement recorded from 27 percent in the prior period to 38.6 per cent in the current period.

Speaking in the retention capacity of operating firms, the commission noted that in the phase of operational challenges posed in domestic and global economies, the industry continues to post inspiring numbers in business retention, reflective of the market resilience and increasing capacity.

NAICOM lamented that the oil and gas portfolio had remained a challenging angle in the market owing to its nature of enormous capital and professional requirements. 

“Against this backdrop, the retention performance in the current period sustained its prior position when compared to the third quarter as evidenced by the overall Non-Life business ratio of 55 per cent slipping from 56.6 per cent held in the prior period. ”the commission stated.

In terms of claims payment and development, available statistics data reveals an impressive development with regards to claims settlement in the non-life business with a record of about 64 (63.7 per cent) compared to the previous period (46.9 percent).

Market concentration risk

The commission said market concentration landscape with regards to premium generation in the fourth quarter remained to a large extent similar to the prior period whereby the top ten Insurers controls about 61 per cent of the market in the non-life segment, 24 of which was by the top three insurers of this segment while just about 1.3 per cent per cent of the market was shared by the bottom ten underwriters. 

“Similarly, Life business on the other hand was controlled fifty-seven 57.1 percent by its top three underwriters while 83.8 per cent of all gross premium generated in that portfolio was recorded for the top ten companies of that business. The least ten insurance companies operating life businesses during the same period held a proportional contribution of less than one 0.9 per cent, ”it said.

The commission said the Non-life section improved in terms of concentration effect, falling three points relative to its market share (64.2 percent) for the top ten in the previous quarter while no significant shift was recorded in the life business. In the overall analysis, the commission said the market maintained a fairly balanced concentration especially, in the Non-life section of the industry, which ultimately controls a major portion of the entire insurance market.

The market size

In terms of market size, the commission said the total assets of the insurance industry stood at N2.328 trillion in the fourth quarter, sustaining a positive growth that signifies expansion at the rate of 2.4 per cent QoQ and at 4.4 per cent YoY. This is relatively at a lower momentum compared to the prior period when the progression rate was recorded at about nine per cent YoY.

The commission said this could be attributable to the wave of recapitalisation drive recorded in that period.  It however said the outlook of the market growth in terms of assets remains positive, with the increasing measures of market deepening and development, “while recapitalisation drive is still ongoing, regulatory insurance laws and provisions enshrined in the insurance bill, being reviewed and that digitisation of the supervisory wide processes would lead to the realisation of the vast potentials in the insurance industry.”

In summary, NAICOM said the statistics of the insurance market performance for the fourth quarter 2022 revealed consistent growth in terms of premium generation, quality improvements in essential indicators including claims settlement and profitability.

It added that it was obvious that the market could be ruled as sound and stable whilst, the stance of the market deepening remained optimistic in spite of operational and macro-economic challenges.

But despite this continued growth in premium, assets and market size of the sector Thomas, said he was not yet satisfied as the helmsman of NAICOM. He insisted he was going to retool in his supervisory functions to get the best for the industry especially in the area of addressing recapitalisation problem of the sector.

“We are making progress but looking at our economy, these, to me, are small numbers. I will also say that our methodology is also changing. Inspection used to be compliance-based with a checklist. But now, the world has moved to risk-based supervision. We started that last year. Some companies have tasted what it means to have risk-based supervision environment. It has been quite revealing about the operations of these institutions. We are taking it to a new level, risk-based capital. If you know the history of capital in this country, it has been an issue and we want to remove that. You can trade, for instance, as a motor third party insurance company, based on your capital. Then, if you want to trade in the highly volatile business environment of oil and gas, you also must provide the needed capital to be able to run at that level. That is where we are going now, ”Thomas stated.