Ken Aghoghovbia
REINSURANCE around the globe are considering upward review of rates, is Nigeria left out, particularly, Africa Re?
Globally the soft market has been on for over a decade largely driven by the lack of significantly impactful catastrophes and increased capital flowing into the market. This trend has not helped margins in the industry and underwriters are therefore considering ways to firm up premium rates.
The premium rates for most classes in Nigeria are still going downhill even at this time when prices are going up for virtually everything. Africa Re is working closely with all parties to ensure sustainable rates are achieved.
With the huge and increasing management expenses of insurance companies in the country, is the sector not heading for a major financial crisis? The huge management expenses of Nigerian insurers are very worrying in the sense that it has made it impossible to produce technical profitability. It is made worse by the fact that incomes from investment can no longer make up for the underwriting losses of most Nigerian insurers. Thus, it is true to say that the Nigerian insurance industry is facing perilous times.
For any business to be profitable, income must be greater than expenses. Insurance companies receive income in the form of monthly premiums and investment returns. Their main expense is paying for covered losses.
Reinsurance companies occasionally reject businesses from underwriters. What are the major reasons for that?
When the insurance company continually offers poor businesses and when premiums due are not paid. A ceding company that is the primary insurer uses reinsurance mainly to protect itself against losses in individual cases beyond a specified sum, its retention limit, but competition and the demands of its sales force may require issuance of policies of greater amounts.
A company that issued policies no larger than its retention would severely limit its opportunities in the market.
Excessive losses
When a company offering a particular line of insurance for the first time wants to protect itself from excessive losses and also take advantage of the reinsurer’s knowledge concerning the proper rates to be charged and underwriting practices to be followed.
In other cases, a rapidly expanding company may have to shift some of its liabilities to a reinsurer to avoid impairing its capital. Reinsurance often also increases the amount of insurance the underlying insurer can sell. This is referred to as increasing capacity.
Africa Re was looking at increasing its capital base, what is the update now?
Presently, Africa Re’s capital is adequate for the exposures in our portfolio of business. We have a very good capital adequacy ratio.
With the recession blowing across all the sectors of the economy, is there need for insurance industry to thread softly?
Recession affects the insurance industry in a number of ways. First, a number of companies become insolvent and fold up, reducing premium income from corporate bodies. Second, insurance becomes a luxury for the common man whose purse has become lean. Insurance claims (fraudulent and genuine) increase.
The genuine claims arise because of benefits payable to staff organizations due to lay off of staff while the fraudulent claims are due to desperation to survive at whatever cost.
Vanguard
