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NAICOM may ask for extraordinary solvency tests due to Coronavirus -PWC

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Tax and audit firm Pricewatercoopers has warned that there could be possibility of regulators asking for extraordinary solvency tests to ensure insurers in Africa’s largest economy can withstand the immediate and knock-on impacts from the coronavirus  pandemic.

The global accounting firm said in a latest report “Covid-19 and the Nigeria Insurance Industry” that with most businesses in uncharted territories, there is a heightened risk of a surge in health, travel and business interruptions, supply chain and event cancellation claims.

It also noted that there would be pressure on sales from reduced business activity; lower interest rates, and increasing credit risk exposures from businesses facing possible default.

With the precipitous drop in crude oil prices and gyrations in the capital market due to a lockdown imposed by government to curb the spread of the disease, experts fret that insurers capital buffers could be under pressure.

However, the Nigerian Insurers Association (NIA) said that member companies will honour claims arising from COVID-19, even as it confirms full reinsurance backing.

The first quarter financial results of companies’ showed obligations to policy holders are mounting, but analysts have said that claims are unrelated to the pandemic and that they arose as a result of backlog ofn claims.

Linkage Assurance Plc claims expenses surged by 16,464 percent to N427,364 million as at March 2020, as loss  ratio increased to 47.65 percent in the period under review, as against a zero figure in 2019.

The company said it would continue to refine its strategy in line with the political, economic, sociological and technological changes in the industry particularly the impact of Coronavirus (COVID-19) pandemic on the business landscape.

NEM Insurance’s total claims or obligations to policy holders stood at N1.32 billion at March 2020, this represents a 21.10 percent increase from the N1.09 billion incurred the corresponding period of last year.

AXA Mansard Insurance’s claims expenses surged by 661.05 percent to N5.90 billion as at March 2020, but it recorded an underwriting profit of N2.05 billion, thanks to a double growth in premium income.

Insurers in Nigeria have a very low capital base that hinders them from taking part in big ticket transactions like peers in Sub Sahara Africa as the industry’s contribution to the economy has been abysmally poor.

Insurance penetration, at 0.31 percent, is extremely low, even compared with countries with similar GDP per capita, for example, India with insurance penetration at 3.69 percent.

Consequently, the National Insurance Commission (NAICOM) was forced to jerk up their minimum capital bases of companies to enable them take on more risk and deliver higher returns to shareholders in form of bumper dividend and share appreciation.

Analysts say they expect the new regulation to spur merger and acquisition activities in the industry because over 80 percent of insurers can’t meet the new rules even if regulator extends deadline to perpetuity.

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