By: Omobola Tolu-Kusimo
Despite the legislation on the Nigerian Oil and Gas Industry Content Development Act, significant high-value insurance risks worth 75 per cent and 60 per cent continue to flow into the international markets, A. M. Best, an international rating agency, has said.
This was made known in a report made available to The Nation in Lagos.
However, A. M. Best estimates that insurers are retaining only between 25 per cent and 40 per cent of the country’s oil and gas related business, compared to the less than five per cent written prior to the 2010 legislation.
The report showed that the insurers lacks the adequate levels of capital to support their exposures to oil and gas business.
The rating agency said this is enhanced by the absence of expertise and technical know-how to support the underwriting of oil and gas business.
It stated that the Act has yet to successfully deliver on its objective of effectively domesticating the majority of oil and gas business in Nigeria.
According to the report, the Act, established in 2010, mandated that insurance companies must participate in 70 per cent of the local energy business arising from the sector before these risks could be transferred internationally.
The report read: “Nigerian insurers lack the adequate levels of capital to support their exposures to these high-value risks. This uncertainty is enhanced by the absence of expertise and technical know-how to support the underwriting of oil and gas business.
“In a further attempt to increase the retention of oil and gas profits in the country, the National Insurance Commission (NAICOM) supported the Nigerian Insurance Association (NIA) establishment in January, 2015 of a new initiative, the Energy and Allied Risks Insurance Pool of Nigeria.
“Managed by African Reinsurance Corporation, the pool consists of 14 members and has capacity to underwrite USD 4 million of oil and energy risks. The pool is expected to assist in the sharing of knowledge and expertise of insurers underwriting oil and energy business, although in reality the capacity of the pool remainsvery small in comparison to the scale of many of the large oil and energy risks underwritten.”
The agency noted that while the Act has enjoyed marginal success, NAICOM has continued to be proactive in its attempts to advance the insurance market.
Over the years, the regulator has implemented numerous reforms to improve the perception of the sector and expand the contribution of the industry to the country’s economic output, to varying degrees of success, it added.