Saturday, February 22, 2020 /04:28
PM / By Fitch Ratings / Header Image Credit: Buzz Nigeria
Fitch Ratings says in a new report that higher minimum capital requirements introduced by the Nigerian insurance regulator will necessitate consolidation among insurers and could ultimately be credit-positive for the industry.
The National Insurance Commission (NAICOM), the insurance regulator in Nigeria, has recently introduced higher minimum capital requirements for insurers with a 31 December 2020 deadline. This has led to a drive for recapitalisation in the industry as insurers seek to either raise more capital or engage in mergers and acquisitions to meet the new requirements.
In our view the Nigerian insurance market is fragmented and intensely competitive, which we believe limits the sector's premium growth prospects. The insurance industry in Nigeria has declined in real terms in recent years as high inflation more than offset modest nominal gross written premium (GWP) growth.
Fitch expects a further decline in real terms in 2019 as inflation continues to exceed GWP growth. We estimate GWP growth at around 8% in 2018, compared with average consumer price inflation of 12.1% in 2018.
Fitch sees strong fundamentals supporting the long-term development of the insurance industry. These include Nigeria's economic growth potential, a large, young, growing population and low insurance penetration.
We believe that scale is a key credit differentiator in the Nigerian insurance market. Fitch believes scale can be leveraged to realise cost- and revenue-synergies, thereby improving profitability, while the strengthened claims-paying ability of insurers could help to build trust with a population that is sceptical of the benefits of insurance. Larger insurers in Nigeria have tended to outperform smaller rivals in real GWP growth and profitability.