Reinsurance firms in Nigeria, are currently grappling with twin problems of hard conditions and difficult business terms spelt out by their foreign retrocessionairs as well as non- patronage by indigenous insurance firms who prefer to cede their reinsurance businesses abroad despite the local content policy of the federal government.
Investigations by THISDAY revealed that whereas federal government’s local content policy stipulates that indigenous reinsurance and insurance firms should control 70 percent of insurance and reinsurance business available in Nigeria while the surplus which is beyond their capacity will be taken abroad, local reinsurers don’t control up to 30 percent of the businesses as Nigerian insurance firms prefer ceding their businesses to foreign reinsurers.
Similarly, insurance firms still struggle to control 30 percent of oil and gas and other juicy businesses in Nigeria as operators prefer to patronise foreign insurance firms in place of indigenous ones.
The overall effect is insurance sector’s low turnover and minimal contribution to the GDP of the economy year in year out.
The sector’s total premium in 2016 stood at N380 billion with 0.03 percent contribution to the GDP.
The industry players, have over the years been contending with the low patronage problem but at present, reinsurers who stand as the cornerstone and backbone of risk bearing mechanism in the sector said their biggest problems are hard conditions given to them by their foreign retrocessionairs based in Europe. They listed other challenges as lack of patronage by indigenous insurers, who are their prime business targets and poor ratings as a result of unhealthy competition among themselves.
By the nature of insurance business which is about risk transfer, insurance underwriters are required by law to reinsure the risk they buy from the insuring public with reinsurance firms who in turn are required to reinsure the same risk with retrocessionairs.
At a recent training programme organsed by the Nigerian Reinsurance Corporation in Lagos, the company’s Managing Director Isioma Chukwuma said that given the challenge of huge claims coming the way of global insurers and reinsurers since the advent of terrorism and climatic change in different parts of the globe, foreign reinsurers and retrocessionairs have in recent times tightened their business conditions especially with country like Nigeria that has continued to grapple with activities of terrorist groups, whereas domestically, unhealthy competition with its associated unprofessional pricing has remained the order of the day.
According to her, despite the local content policy of federal government, which for insurance sector requires business operators to insure and reinsure 70 percent of their businesses in Nigeria before taking the surplus abroad, Nigerian insurance firms, currently retain less than 30 percent of their risks with local reinsurers, while ceding greater part to foreign reinsurers.
The worst hit in the local content policy violation by Nigerian business operators are the reinsurers who recently raised the alarm that they are not satisfied with percentage of domestic risks that are ceded abroad.
Chukwuma, who is also the immediate past president of the Chartered Insurance Institute of Nigeria (CIIN), said though reinsurance firms in Nigeria do not have enough capacity to carry all the risks in Nigeria, insurance underwriters should abide by the local content policy by exhausting their available capacity before taking the surplus abroad.
Chukwuma, who said she was dissatisfied with the trend of things in Nigerian reinsurance market, pointed out that though the insurance sector regulator NAICOM, had issued circular that local content policy should be followed religiously, however observed that the companies are not adhering to that but are steadily taking their reinsurance risks abroad to the detriment of domestic reinsurers.