Recession: Acquisitions, mergers loom in insurance sector

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Stanley Opara with agency report

The Nigerian insurance sector is set to enter a period of consolidation as insurers struggle to raise cash to meet new regulatory requirements amid the worst economic recession in over two decades.

With markets largely shut for companies to raise equity or debt, takeovers by foreign insurers or mergers between smaller local firms seeking to grow are among the best ways for underwriters to bolster capital levels so that they can take on more risk, Bloomberg quoted the Chief Executive Officer of the Nigerian Insurance Association, Olorundare Thomas, as saying.

Regulators have said they will audit the insurers’ books to make sure companies are not signing on more business than they are able to pay out as the National Insurance Commission moves toward risk-based supervision.

NAICOM said last month that the economy’s downturn meant it had to be more vigilant in monitoring the industry’s profitability, liquidity and capital adequacy ratios. Insurers that do not want to do deals or cannot raise capital will need to cut back on new business to reduce their risk exposure, Thomas said.

It will not be the first time the industry has gone through a consolidation. A recapitalisation exercise in the wake of the global financial crisis and a meltdown in Nigeria’s banking sector in 2009 cut the number of insurance companies to about 60 from more than 120.

The umbrella body is encouraging members to cater to low-income earners so that the industry can account for three per cent of Nigeria’s Gross Domestic Product by 2020, from about 0.3 per cent now, Thomas said.

The insurance industry grew by 1.1 per cent in the fourth quarter of 2016 compared to 5.1 per cent year-on-year, reflecting a difficult operating year, the National Bureau of Statistics said on Tuesday. The economy shrank for a fourth consecutive quarter in the three months through December and contracted by 1.5 per cent for the whole year, the agency said.

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