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Wednesday, March 29, 2023

Insurers Oil & Gas Premiums Jump 28.17% on Currency Devaluation

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The premiums earned by Nigerian insurers on oil and gas projects have surged on the back of devaluation of the naira currency as insurers rebounded from the pandemic shock.

Data gathered by MoneyCentral shows insurers collectively grew premium income from oil and gas by 27.98 percent to N108.55 billion in December 2021 from N84.81 billion as at June 2020.

“Whenever the currency weakens, the value of the portfolio of oil and gas increases,” said Moronfola Monsuru, actuarial scientist at Coronation Insurance Plc.

“However, the risk has not changed…only the exchange rate,” said Monsuru. The Naira trades at between N415 and N430 against the dollar at the Investors and Exporters window.

At the Black market traders sell the dollar between the N670 and N685 mark, as the currency has been volatile.

Analysts at Afrinvest Securities attribute the uptake in this segment to the enabling environment provided by the Local Content Act.

They added that the recent surge in global crude oil prices has returned the sector’s fortune in contrast to the decline witnessed in 2020 when operations were adversely hit by low oil prices.

“Given the favourable regulatory and operating environment, we expect premiums to continue their uptrend in 2022,” said the analysts.

Crude oil prices have risen to an unprecedented high this year, thanks to the sanctions slapped on Russia by the United States and Europe for invading Ukraine.

Brent Crude Oil now goes for $98.8 per barrel, while West Texas Intermediate (WTI) trades at $91.97.

Out of the total N374.27 billion gross premium written in the insurance industry in 2021, General Business contributed N166.58 billion, followed by Life Business (N151.55 billion), and Oil and Gas, (N108.55 billion).

Fire business was another major source of premium, contributing (N42.06 billion) within the same period, while Motor business brought N37.24 billion, and Maritime and Accident, Marine, and Accident, raked in N58.79 billion.

Analysts say with increased capital base, insurers are able to deploy those funds into big big-ticket risks like oil and gas.

Of course, the enforcement of the Pension Reform Act of 2014 helped the growth of the life insurance companies.

The Act stipulates that every employer, to which this applies, must maintain a life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee.

According to the guidelines, the employer is required to fully bear all costs in relation to procurement of this policy, and this shall be in addition to the contributions to be made by the employer to each employee’s Retirement Savings Account.

Insurers have been riding on the wave of economic recovery that swept across the globe, thanks to the successful rollout of vaccines and the relaxation of the lockdown policies by the government.

Despite the improvement in premium income, the industry is beset with a myriad of challenges that hinders it from contributing significantly to the economy and making it a laggard among sub-Saharan Africa and global peers.

In ranking terms, the Nigerian insurance industry underperformed peers, contributing 0.02% to world premiums and ranked 81st (previously 71st) out of the 88 countries profiled by the Swiss Re Institute in 2021.

The sector’s insurance penetration gross premium written (GPW as a % of GDP) was relatively at the same level from the previous year—printing at 0.3% relative to the modest performance of South Africa (13.7%), Morocco (4.5%), Brazil (4.1%), and Kenya (2.2%).

Leadway Assurance Limited, the largest insurer by total assets, raked in N17.39 billion in premium income from specialized risk (oil and gas and Aviation), which is 9.83 percent higher than 2020’s N15.83 billion.

Custodian Insurance realised N18.18 billion from premium income on oil and gas, but it is lower than 2020’s N18.26 billion.

AXA Mansard Insurance Plc premium from oil and gas increased to 14.74 billion in December 2021 from N10.38 billion the previous year.

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