The balance sheet of Life insurers will be strengthened by rising bond yields amid an aggressive monetary tightening by the central bank that has launched an onslaught on stubbornly high inflation.
That’s allayed the fears of investors that claims inflation and foreign exchange volatility would undermine profit and further suppress margins in a sector where the majority of firms have their shares trade below N1, and an abysmally poor dividend payment has continued to add impetus to poor valuations.
It is important to note that the current macroeconomic policies means life insurers may finally start to get higher interest rates on their investments in corporate bonds, and it is expected that managers have started to pack premiums collected from policyholders into investment securities.
Nigeria 10Y Bond Yield was 13.51 percent on Friday October 14, according to over-the-counter interbank yield quotes for this government bond maturity.
And that is compared to 4.21 percent as at October 28, 2020, two months before the coronavirus pandemic undermined economies across the globe.
To mitigate the impact of inflation, the Central Bank of Nigeria (CBN) has raised the interest rates to a 20-year-high of 15.5 per cent.
Interestingly, Leadway Assurance, Custodian Life, AXA Mansard, Royal Exchange, and Mutual Benefit Assurance collectively grew premium income by 32.25 percent to N90.64 billion as at December 2021 from N68.53 billion as at December 202o, according to data gathered by MoneyCentral.
“A closer look reveals annuity business as the major driver of life premiums, representing 48.4% of premiums in 2017 due to the growing number of retirees taking annuities due to the Pension Reform Act 2014,” said analysts at Afrinvest Securities Limited.
“We expect continued double-digit growth in life insurance premiums in line with the growth in pension assets,” said the analysts.
Nigeria’s pension assets under management (AUM) grew by 30 percent year-on-year to N13.6 trillion at the end of January 2022.
The largest insurers in Africa’s largest economy realised N85.39 billion in investment income from bonds and securities in 2021, which is 6.77 percent lower than 2020’s N91.60 billion.
The country’s insurance sector is still in its embryonic stage, which analysts say is an opportunity for entry by foreign investors. However, the sector is beset by poor regulations and a myriad of challenges that means the sector lags peer rivals in Africa in penetration.
The Nigerian insurance industry underperformed peers, contributing 0.02 percent to world premiums and ranked 81st (previously 71st) out of the 88 countries profiled by the Swiss Re Institute in 2021.