Insurance

Underwriters cede $218.76bn sum insured of NNPC, Dangote, others

Executives of the National Insurance Commission with journalists in Ije Ode, Ogun State.

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Chuks Udo Okonta

Insurance companies ceded over $218.76 billion sum insured of businesses placed by the Nigerian National Petroleum Corporation (NNPC), Dangote Refinery and eight others, Inspenonline can report.

Sum insured is the amount of money that an insurance company is obligated to cover in the event of a covered loss.

According to the National Insurance Commission (NAICOM) local insurers onlyb absorbed $495.99 billion of top 10 risks placed by Nigerian firms.

NAICOM stated that the NNPC’s consolidated insurance package insurance with $99.58 billion sum insured, was shared at 78 per cent locally and 22 per cent abroad, amounting to $77.67 billion (local) and $21.91 billion (abroad) respectively.

Chevron Nigeria Limited, energy package insurance, sum insured $14.31 billion; local, $10.73 billion, foreign $3.57 billion; Mobil Production Nigeria Limited, energy package/Physical Damage and O.E.E, sum insured, $14.09 billion, local, $9.86 billion, foreign $4.23 billion; Lafarge HOICIM, Combined property damage/business interruption and public liability, sum insured, $564.88 billion, local intake, $388.24 billion, foreign $176.64 billion.

Dangote Fertilizer, Construction/Erection, all risks and third party liability, sum insured, $1.12 billion, local, $0.672 billion, foreign, $0.44 billion; Sahara Power (Egbin Power Plc) (Combined Property Damage/Machinery Breakdown/Liability Terrorism/Political Violence cover Policy $3.17billion; $1.43billion, $1.74billion

Hinson Production (Energy Package (War and Terrorism Inclusive) $1.2billion, $484.8 million, $715.2 million. StarDeep Water Petroleum Limited (Energy Package) $3 billion, $2.25 billion, $750 million.

Dangote Refinery (Construction/Erection All Risks,Third party Liability, Owners Plant Delay in Startups) $6.7 billion, $1.54 billion, $5.16 billion

Aviation Refueling, refueling Liability Insurance) $1 billion, $103million, $897 million and Centre for Energy Research and Trainings Affiliated to Ahmadu Bello University ( Third Party Nuclear Liability Insurance $7.01billion, $3.01million and $6.97 billion.

Speaking on the need for the industry’s recapitalisation policy, the Deputy Commissioner for Insurance Technical, Sunday Thomas, noted that the move was to cause a shift in the system.

As an agency of the federal government, Thomas said that more than ever before, NAICOM wants to be visible, while also doing everything within its terms of reference as an institution to improve on its contributions to the economy.

“In quick succession, we want to prosecute this recapitalisation like one never before it. The whole idea of the exercise is to have an industry that is strong; that is diligent in prosecution of its assignments; that is highly liquid in terms of claims settlement, that is solid in terms of assets, that is visible in terms of retaining business within our environment.

“We believe that at the end of this whole exercise, we want to turn around the image of the market,” Thomas, who currently sits in for the commissioner said while addressing journalists at a workshop in Ijebu-Ode, Ogun State last Saturday.

Director, Policy and Regulation Directorate, NAICOM, Pius Agboola, who also spoke on the recapitalisation, said capital structure refers to the way a firm chooses to finance its assets and investments through some combination of equity, debt or other internal funds, stressing that this mixture determines the capital gearing of a company.

He maintained that the ratio between debt capital (fixed interest) and equity capital (variable dividend) is called capital gearing. “It is high gearing when the proportion of debt capital is high than the equity share capital. In order to protect the interest of equity shareholders, the company uses proper mix of various types of securities in its capital structure.

“Thus, the capital base increase through increase in shares subscription would definitely dilute the capital structure of companies with high gearing ratio and this will facilitate further borrowing at a better terms(should there be any need for it). One of the reasons while companies prefer raising capital through debt instrument is the cost of raising fund through new shares subscription but good enough, the Commission is already working on palliative measures on the new capital directive.

“The liquidity position of some of the underwriters is very bad. This is because, heavy investment are made on fixed assets like building, land etc which are impacting on their ability to meet current obligations as they fall due. The capital increase will thus make the company liquid to meet their obligations,” he said.

He said the emergence of holding companies and Conglomerates required huge amount of capital for its operations, adding that the funds available in insurance business (short, medium and long term funds) facilitates establishment of holding companies and conglomerates. He said the capital increase will provide funds for such business strategy in which some of the underwriters have been approaching the Commission for approval. There is no doubt, consolidation would be of greater benefit for the insurance sector.

“The capital base of an underwriter is of great important. A large proportion of the local risks are presently ceded outside because of low retention capacity. The table below shows selection of some risks in which Approval in Principles(AIP) have been granted recently. Hence, the increase in capital base would definitely increase retention capacity of the underwriters,” he said.

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