With N1tn Gross Premium, Agusto & Co Foresees Strong FY 2024 for Insurance Sector Fuelled by FX Gains

Nume Ekeghe

Ratings agency, Agusto & Co. has noted that in the fiscal year (FY) 2023, the Nigerian insurance industry recorded robust performance, with an estimated gross premium income (GPI) surpassing the significant milestone of N1 trillion.

Owing to this, the rating agency in its 2024 Insurance Industry Report titled, ‘The Nigerian Insurance Industry- Navigating the Turbulent Terrain’ released yesterday, noted that despite facing disruptions from the election cycle and policy reforms, the industry sustained its impressive double-digit growth trajectory.

 It also added that in FY 2024, elevated investment income was expected to drive growth, notably driven by increased foreign exchange gains on dollar investments and the upward trajectory of interest rates.

It stated: “The Nigerian insurance industry’s estimated gross premium income (GPI) exceeded the N1 trillion mark in FY 2023, as the Industry maintained its double-digit growth trend despite disruptions by the election and policy reforms. “However, insurance penetration remains low at 0.4 per cent. The uptick in the industry’s premium was driven by strong regulatory support and premium rate adjustments on policies such as fire and good-in-transit.

“NAICOM’s increase in third-party insurance for private vehicles from N5,000 to N15,000 and increase in comprehensive insurance cover to not be less than five per cent of the insured sum after rebates and discounts also significantly propelled the growth in GPI.

“The persistent depreciation of the naira also elicited a boost in premiums from foreign currency-denominated policies, particularly oil and gas transactions, to support the growth in GPI.

“With premiums witnessing a surge, claims paid by the industry also rose as replacement costs and surrender rate soared in 2023 and policyholders reduced ‘out-of-pocket’ settlements.”

The report further stated that the industry’s performance from underwriting operations would improve in the near term with the surge in GPI moderating the growth in claims.

“The industry’s investment returns have been suppressed in prior years owing to investments in some low-yielding asset classes and the low-interest rate environment. However, in 2023, investment income received a major boost as interest rates trended upward, particularly in the second half of the year. The industry also recorded significant foreign exchange gains from investments in Eurobonds, foreign currency placements and USD mutual funds.”

Agusto & Co. also estimated an improved return on investment of 12.2 per cent for the industry in 2023, relative to the 7.3 per cent reported in 2022.

“In 2024, we believe the Industry is positioned to generate higher investment income following the Central Bank of Nigeria’s 400 basis points monetary policy rate hike depicting a surge in interest rates, particularly on government securities and placements which dominate the industry’s investment portfolio.

“The equities market has also garnered the attention of many investors after the NGX’s all-share index posted a 45.9 per cent return in 2023 and went on a bullish run in the first two months of 2024.”

On its 2024 projections,  it stated: “ Overall, Agusto & Co. expects performance in FY 2024 to be backed by higher investment income, particularly from foreign exchange gains on USD investments and rising interest rates.

“Improved underwriting business performance elicited by faster growth in gross premiums relative to claims also supports our expectations.

 “Nevertheless, the country is currently undergoing economic reforms with some policy shifts being implemented. We believe industry operators will have to respond promptly and adequately to changes that might impact operations to stay ahead of the curve and sustain performance.”

 Furthermore, it stated that in the near term, Agusto & Co. expects the conversion to a risk-based capital regime to gain more momentum despite prior delays with the passage of the Insurance Bill.

 “We also expect NAICOM to continue implementing policies and guidelines that would improve the Industry’s viability and sustainability. The apex regulator has already released guidelines for the operations of takaful and re-takaful insurance as well as circulars on market conduct and enterprise risk management framework and regulatory sandbox in the last year and we expect more regulatory actions going forward.”