The Nigerian Insurance Sector - Rich Hunting Ground for Investment

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Saturday, August 30, 2014 4:00 PM / Meristem Securities 

•   Nigeria’s insurance industry will remain driven by the country’s rich demography given the population of c.170m (estimated growth rate of 2.54% per year), median age of 17.9 years, rising urban population and emerging middle-class which the sector continues to explore.

•   Notwithstanding the demographic blessings, insurance sector lags the overall economy’s growth as insurance penetration (insurance gross premiums earned as a percentage of GDP) and density (insurance gross premium earned in relation to total population size) remain low at 0.43% and USD8.9 respectively relative to South Africa (13.39% and USD1, 071.9), Mauritius (6.25% and USD507.2), Kenya (3.17% and USD29.9) and Ghana (3.07% and USD49.3). 

• National Insurance Commission (NAICOM) remains committed to solidifying the industry’s configuration on the back of new regulatory measures. Recapitalization regulation, Market Development and Restructuring Initiative (MDRI), adoption of IFRS reporting style, introduction of “No Premium No Cover”, and issuance of guidelines on Micro-insurance and Takaful are some of the efforts in place.

• The Insurance sector in Nigeria is mainly dominated by life and motor insurance, which have historically contributed an average of c.45% to premiums. Trend analysis shows that the top five insurance companies contribute about 40% of annual premiums written.  

•  The industry in recent time witnessed certain restructuring as most insurance companies embarked on intra- and inter-industry collaborations. Mergers between Wapic Insurance and Intercontinental Properties, Custodian & Allied Insurance and Crusader Nigeria Plc. were recently concluded. Deals on acquisition of 100% stake in Oasis Insurance Plc. by FBN Life Assurance Limited, Oceanic Life Assurance’s acquisition by Old Mutual Nigeria Ltd were also sealed. 

• Characterized by immense and growing competition as indicated by our estimate of Herfindahl-Hirschman Index, we see the industry’s prospects hinging on better product development for market growth. 

•   Insurance stocks performed markedly well in 2013 given the return of 40.48% with the sustenance into 2014 as year-to-date (YtD) return currently pegs at 10.95%. In our view, the insurance sector is inherently laden with intrinsic potentials that portray the industry as a “Rich Hunting Ground for Investment”.  

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