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Tuesday, March 21, 2023

Protests are Double Whammy for Nigeria Insurers Already Hit by Virus

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Nigerian insurers will be the hardest hit from protests that have paralyzed business activities across Africa’s largest economy, even as they are yet to recover from the negative impact of the coronavirus.

This comes as the Lagos State government imposed curfews to curb the riots.

Properties are being looted and put to the torch, and there are concerns that companies whose factories and warehouses are in Lagos could face significant losses.

Companies such as Flour Mills Nigeria Plc and Dangote Sugar with offices and major operations at the Apapa ports will be affected because the Nigerian Ports Authorities (NPA) was set on fire by angry youths.

Because of the disruption to ports activities, firms that import their raw material will suffer deterioration in profit margin as production costs will go up.

Abiola Gbemisola, consumer goods analysts at Chapel Hill Denham Limited said firms such as Unilever Nigeria, Cadbury Nigeria, and P Z Cussons with factories in Lagos Central will feel the pang of the crisis.

However, Gbemisola said that International Breweries and Nestle with factories at Ogun State will not be much affected.

There is also the problem of distribution as manufacturers will be unable to ship their goods into Lagos due to heightened insecurity.

“They may be forced to sell to beleaguered retailers on credit because Shopping Malls have been looted,” said Gbemisola.

Guinness Nigeria, Unilever Nigeria and International Breweries recorded losses in the financial period ending June 2020 as seen from their financial statement published on the website of the Nigerian Stock Exchange (NSE).

The telecommunication firms such as Airtel Africa and MTN Nigeria could be beneficiary of the current bedlam as data usage will spike since people are working from home and there will be acceleration in online activities

Since Nigerian banks have learnt to work from home, analysts say the impact of the crisis may not have a significant impact on earnings of financials.

Analysts have warned that insurance companies who are reeling from deteriorating margins and spiraling combined ratios will suffer huge claims as a lot of insured properties are being destroyed by hoodlums.

“Insurance companies will suffer most. Many of these properties have been insured, and liabilities will crystallize,” said Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited.

Hoodlums have looted and set ablaze Circle Mall and Spar Super Market in Jakande in Lekki. They also raided Oyingbo Bus Rapid Transport (BRT) and burnt some buses.

Shops along Adeniran Ogunsanya Surulere were looted and vandalized, and the Nation Newspaper, owned by All Progressive Congress (APC) chieftain Bola Ahmed Tinubu, was put to the torch.

Morufola Monsuru, actuarial Scientist at Wapic Insurance said insurers could increase the price of cover in the next renewable year because of what is happening.

Monsuru added that most insurers had removed the riot and commotion insurance from the section they cover because of high frequency of occurrence.

“Circle Mall was attacked last year and they lost so many goods and the insurers bore the brunt,” said Monsuru.

The insurance sector of the Nigerian economy contracted by 28.15 per cent in the second quarter of the year, according to the latest GDP report by the National Bureau of Statistics (NBS).

Analysts say there will be devastating consequences if the pandemonium lasts for another two weeks.

The Lagos Chamber of Commerce and Industry estimates that the unrest has cost about N700 billion ($1.8 billion) in lost output.

Lagos, with a population of 22 million people, is the commercial hub of Nigeria that houses the headquarters of multinational companies and banks. It has a GDP of $136 billion and generates the highest Internally Generated Revenue (IGR) in the country.

Nigerian insurers are yet to recover from the wrought caused by coronavirus pandemic that forced the government to impose a lockdown policy that disrupted business activities across the country.

As a result of the precipitous drop in the price of oil and Covid-19 crisis, Nigeria’s economy contracted 6.1 percent in the second quarter. The government expects the economy to shrink as much as 8.9 percent this year.

The International Monetary Fund has projected that Nigeria’s economy will contract by 4.3 per cent in 2020.

The country’s inflation rose to 13.71 per cent in September, hitting its highest level since its 13.34 per cent rate of March 2018.

Foreign investors had thought that Lagos was a safe place, and the current crisis could further undermine foreign direct investment.

“Those disruptions will weigh on GDP growth. And it is likely we remain in recession,” said Wale Okunrinboye, fixed income analysts with Sigma Pension Limited.

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