AM Best insisted that Nigeria’s insurance market continues to present potential for significant growth and development considering the nation’s substantial oil and gas reserves, its young and growing population and its position as Africa’s largest economy.
Unfortunately, howevoer, Nigeria has failed to deliver on that potential historically due in part to the volatility of growth in the country’s real gross domestic product (GDP), coupled with the sporadic enforcement of mandatory retail insurance lines.
In a new Best’s Market Segment Report, “Nigeria’s Insurance Market Offers Significant Potential Despite Headwinds”, AM Best notes that, due to the COVID-19-driven economic slowdown, the insurance market regulator (National Insurance Commission [NAICOM]) has agreed to further delay its revised plans to strengthen market capitalization and limit the volume of premium flowing out of the country.
The rating agency noted that additional steps need to be taken to enforce the uptake of mandatory covers in order to close the protection gap.
At the same time, insurers were charged to improve their distribution and premium collection capabilities via mobile applications to reach a greater proportion of the population.
While the implementation of minimum pricing on certain lines of business and new minimum capital requirements will go some way towards alleviating the negative trend in the market’s underwriting leverage, the benefits may be short-lived. In AM Best’s view, a rules-based capital setting regime lacks the sophistication that a risk-based approach has to adequately capture company-specific risks that stem from their underwriting and investing activities.
Overall, the organisation affirmed that the market has been profitable, which puts it in a better position to withstand the consequences of the COVID-19-driven global recession in the medium-term.
In AM Best’s view, those players with robust balance sheets will be more resilient and able to take advantage of market growth when the economy starts to recover.
