Mr. Segun Omosehin is the Managing Director of Mutual Benefits Assurance Plc. In this interview, he opined that borrowing locally to finance the budget deficit will have direct impact on activities in the economy and the insurance sector.
What is the expectation for the insurance industry in the light of experts’ projection that the recession will be reversed in 2017?
There have been a lot of predictions on the economic outlook for 2017. Many experts predicted about 1.0 per cent to 1.1 per cent growth in GDP. The World Bank also predicted 1.0 per cent rise in the economic outlook. These are outlooks that Mutual Benefits have used in benchmarking what we want to do for the year. It is on that premise that we are looking at the current year. However in absolute terms, we also need to look at those things that the government has put in place that will cushion or sort of arrest the recession at hand.
There are several pointers to the fact that government is actually committed to arresting the recession. One is the amount that was allocated to power infrastructure and housing as well as how much was allocated to the transportation sector. These are areas that will directly impact the economy. Anything you put on infrastructure will directly impact the economy.
Also government took a decisive step to put a specific amount for social welfare, that is, the program to provide cash for the less privileged Nigerians and also micro credit schemes that were set up. Above that is the deficit in the budget which is going to be financed through debt and about 52 per cent of that debt is to be sourced locally.
About N1.2 trillion is to be sourced locally and this will have direct impact on activities in the economy. Within these parameters, there are areas for companies like ours that are concerned with covering risks associated with economic activities in the system to be hopeful. The picture painted from the budget gives hope that activities will pick up and insurance will do well. However there are few areas to be cautious of.
The basic premise on which the experts’ projections are based are on the ability of Nigeria to generate consistently some amount of revenue from the oil sector. Any major disruption in the flow of income from the oil sector is likely to have direct impact on the budget. Hence we need to look at what machinery the government has put in place to manage the Niger Delta crisis.
I am optimistic because the Vice President recently led a delegation to that region to look at a more pragmatic approach to managing the issues rather than an Abuja political decisions that will not have direct impact on what is going on over there. So that gives us some comfort that for the first time, government is really looking at the real issues and looking at how well as a nation we can manage our own resources.
Foreigners are not going to manage our crisis for us. So we need some ingenious guys within the system that understand the local dynamics and be able to address some of these issues. So on those premises we are confident as an industry that insurance has a brighter prospect this year given those parameters.
Mutual Benefits has been operating for 21 years now, how has the journey been like?
It’s been an interesting journey like any typical business journey in our economy. There have been ups and downs but overall we thank God that it has been success though not without its own challenges. But we have been able to overcome those challenges and we thank God that we are waxing stronger.
How was year 2016 like for the business?
For the business it was very good. But because we don’t operate in isolation, we operate within the larger economy; hence the devaluation in the value of the naira affected our net worth. So in absolute terms if we convert what we have done in relation to the dollar, you will realize that we did much worse than the previous year because of the exchange rate to the dollar.
That in a way also affected our balance sheet because we have one of our particular portfolio denominated in dollar. So we had to accrue for some foreign exchange loss because of that particular instance. So it was a performance I would say we were proud of but the vagaries in the macro economy affected ultimately the net value of what we have been able to achieve.
Do you see insurers adhering to the National Insurance Commission’s directive that local capacity must be exhausted before ceding oil and gas risks abroad?
That directive is the best thing that can happen to this market. It is in the best interest of the market. I will continuously commend the regulator for taking some of these initiatives. The problem with our sector has not been lack of regulation; it is lack of enforcement of those regulations. Local content law was not made today. Issuing a new directive is reiterating and putting on the front burner those regulations that already exist.
My take on it is that it is good for the industry and I am hoping the operators in the system will see the beauty of this and adhere to the regulation. Ideally, why would you cede a risk outside when the capacity within the market has not been exhausted? It doesn’t make sense. In UK, Lloyds would have been exhausted before you think of going to the US market .
But the regulator has just stepped on those things that they should be doing. Some measures of enforcement coupled with sanctions when there are breaches will help bring back operators onto the line. The problem has always been that sanctions are not enforced. If you just sanction one person and go to sleep, others will continue. So consistency on the part of the regulator to sanction defaulters no matter whose ox is gored will benefit the industry.
If anyone violates the guidelines and is sanctioned, people will fall in line. Look at what we are enjoying today about ‘no premium, no cover’. Now if I write ten billion naira premium, it is in my kitty. In the past when you say you write five billion naira premium, half of that are receivables and you are at the mercy of the brokers. But today the situation has reversed. So underwriters are better off as they can easily pay claims now.