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Banks Holdco Structure Turmoil to Spur Insurance Penetration

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The push by more Nigerian banks to adopt a full holding company (Holdco) structure as a means of generating higher returns and a well-diversified assets base, is expected to deepen insurance penetration in the country and spur acquisitions.

A holding company does not produce any goods or services by itself; instead, its main purpose is to own shares of other companies to form a corporate group. The real purpose of its existence is, therefore, to control another company.

It allows better asset management, better distribution of assets and efficient sale of the asset.

A couple of Nigerian banks had already made an inroad into the insurance market by setting up or launching insurance companies.

Already, Access Bank, EcoBank, First Bank and Guaranty Trust Bank have Bancassurance relationships and equity stakes in insurance companies while Zenith Bank, Unity Bank and Stanbic IBTC Bank have fully owned insurance subsidiaries.

On July 14, Guaranty Trust Holding Company Plc (GTCO), emerged after Nigeria’s largest lender by market capitalisation transited into a Holding Company (Holdco) structure from its commercial banking structure as it completed its corporate reorganisation.

With a market capitalization of N871.163 billion as at Friday July 23, 2021 and total assets of N3.6 trillion, the lender has the financial strength to acquire some insurance companies.

Some zombie insurers like Goldlink Insurance, African Alliance, and International Energy are technically insolvent as their liabilities exceed assets, which makes them easy targets for acquisition.

Analysts say the frenzy of banks for Holdco structure in a bid to magnify their investment will definitely spur penetration to increase the industry to the economy.

“We expect full HoldCo structure frenzy to boost banks’ investments in the insurance sector and while this may stifle competition for the industry, it would boost growth,” said analysts at Afrinvest Securities.

The sector’s insurance penetration, defined as Gross Premium Written as a percentage of GDP (GPW/GDP) , remains poor at 0.3% with South Africa (13.4%), Morocco (3.9%) and Kenya (2.3%) advancing in reach. Similarly, the sector grapples with low insurance density (GPW per capita) of $8.0 compared with South Africa ($803.0), Morocco ($127.0), and Kenya ($43.0).

In terms of global relevance, the Nigerian insurance sector lagged significantly with total contribution to global premiums at 0.03% as it ranks 63rd of 88 countries profiled by Sigma Research in 2019.

A lot of insurance companies need capital injections to strengthen their balance sheet and working capital p0sition that will enable them to undertake big ticket transactions.

It is worth repeating that the banks are more capitalized and have a shock absorber against macroeconomic headwinds; what this means is that they will use their resources to digitalize the insurance industry for better performance.

On June 1, Heirs Holdings (HH), owned by billionaire and visionary, Tony Elumelu, disrupted the insurance landscape with the launch of Heirs Insurance Limited (HIL) and Heirs Life Assurance (HLA).

The banks are however to be reminded that the insurance sector is circumscribed by lack of awareness on the importance of taking a cover, poor regulations, lack of trust for the claims process, and sluggish economic recovery.

Analysts at Afrinvest have advised the Banking and Insurance regulators to ease restrictions and bottlenecks associated with the introduction of new products, Bancassurance and partnership with telecommunication companies to foster inclusion of millennials and Generation Z in insurance products.

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