There has been an improvement in the premium that insurers collect from oil and gas, but energy risks are being substantially insured abroad due to low capacity in the local insurance industry.
For the year ended December 2022, the fifteen largest companies saw oil and gas premiums rise by 72.63 percent to N72.63 billion from N62.59 billion the previous year, according to data gathered by MoneyCentral.
The government had enacted the local content law that would help spur local participation in the oil and gas industry and reduce foreign participation.
It had set a target of 70 per cent local content for underwriting of oil and gas risks, implying that 70 percent of all insurance risks associated with oil and gas business including prospecting, exploration, drilling, constructions, shipping, distribution, marketing, and transportation are to be insured in Nigeria with registered Nigerian insurance companies.
Despite the law, there is still significant participation of foreign investors as the local players do not have enough capital to undertake big ticket transactions.
Of course, experts have called on the regulator to accelerate the deadline for recapitalization that they are confident will lead to mergers and acquisitions needed to share up capital of sector players.
NAICOM, the insurance industry regulator, increased the paid-up share capital of life companies from N2 billion to N8 billion, general business from N3 billion to N10 billion, composite business from N5 billion to N18 billion, and reinsurance companies from N10 billion to N20 billion, according to a circular issued and signed by Pius Agbola, director, policy and regulation directorate on-behalf of the Commissioner for Insurance.
“Despite the local content laws and regulations established in Nigeria, insurance companies are yet to fully take advantage of the opportunity to effectively position themselves as major players capable of leading foreign firms in the underwriting of oil and gas business,” said Adebisi Ikuomola, Deputy Managing Director, Technical of Anchor Insurance.
“The mandates to companies in the upstream petroleum sector to cede their insurance business to local insurers, is in line with efforts to maximise the participation of local insurance companies in the oil and gas sector, ” said Ikuomola.