Nigerian insurers transferred 74.8 per cent of income generated from oil and gas businesses to their foreign counterparts in the first quarter of 2023, Q1’23, in breach of the regulatory maximum of 30 per cent.
National Insurance Commission, NAICOM, disclosed in its first quarter report that local insurers generated N65.4 billion premium income from oil and gas business in Q1’23, but transferred N48.9 billion or 74.8 per cent to foreign insurers.
Analysis of the first quarter report released by the National Insurance Commission, NAICOM, shows that the development is in sharp contrast to the N25.16 billion or 50.1 per cent transferred to foreign insurers out of N50.2 billion premium income generated from oil and gas in Q1’22.
Experts attributed the development to the dollarization of the oil and gas business which is having a huge impact on local retention.
It will be recalled that the local content law stipulates that 70 percent of all insurance risks associated with oil and gas businesses must be insured in Nigeria with registered insurance companies while 30 per cent can be ceded abroad.
Speaking on the development, Managing Director/Chief Executive Officer of International Energy Insurance, Mr. Olasupo Sogelola, said that the recurring depreciation of the naira as well as increasing difficulty of accessing foreign exchange makes it difficult to comply with the requirement of the local content law.
He said that the oil and gas business is transacted in dollars and once the Naira depreciates, retention comes down while the value of the risk goes up.
Sogelola noted that insurance companies in Nigeria have low capacity as many companies are still grappling with a relatively low capital base to engage in oil and gas business.
Sogelola also stated that the dollarization of the oil and gas business affects claims payment as it forces insurers to pay higher claims.
He said: “Claims are also affected because the claims that you have incurred that you have not paid, by the time it crystallizes, you will pay at a higher rate.”
Also speaking, Deputy Managing Director, Technical, Anchor Insurance, Mr. Adebisi Ikuomola, said that participation in oil and gas business is actually reducing. However, full participation can only be guaranteed if the exchange rate for the dollar comes down or insurers’ capital base goes up.
SOURCE: VANGUARD
