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By NBF News

Biyi Otegbeye

Managing Director/CEO of Regency Alliance Insurance Plc., Mr. Biyi Otegbeye, says the Nigerian insurance industry is immersed in a crisis of poor perception, which has resulted in a dip of share prices of quoted companies in the sub-sector.

According to Otegbeye, poor perception - fallout of the global economic recession and crash in stock prices - rather than existing fundamentals, had forced prospective investors to be wary of insurance stocks traded on the Nigerian Stock Exchange.

Otegbeye, in an exclusive interview with Daily Sun, however, noted that the industry was not experiencing any financial crisis. He stated that ironically, while prospective investors may not be willing to embrace the sub-sector, existing investors were unwilling to offload their shares, owing to the inherent value of such shares in the future.

'Indeed, one of the greatest casualties of the global meltdown or economic recession was the insurance industry,' Otegbeye told Daily Sun in his Lagos office. 'Insurance companies are suffering from a multiplier effect of the jeopardy from the capital market and the crash in stock prices; they are playing second fiddle to the oil and gas, as well as the banking stocks.

'Insurance stocks are suffering from the problem of negative perception. People already make up their mind about the state of the industry. They already feel it is not okay. 'But that is the thing with perception; you have to work harder to correct it if you are affected. So, for me, I tell people that by the time insurance companies begin to give good results expectedly, I think the market will begin to discern the true situation in the industry,' Otegbeye added.

The Regency Alliance CEO also spoke about the company's foray into the Ghanaian insurance market and the benefits of the local content law on the Nigerian insurance industry.


We emerged in February 2007, following the merger of four insurance companies in Nigeria. They are Regency Insurance Plc., Nigerian Alliance Assurance Corporation Limited, Destiny Insurance Company Limited and Capital Express General Insurance Limited.

The consolidation of their businesses, experience, knowledge and strengths made us a leader in the general insurance business market of West African sub-region.  Drawing on deep industry and underwriting expertise, superior claims handling and market experience, we are offering customized insurance products in collaboration with our intermediaries and technical partners all over the world.

However, the legacy company was incorporated in June 1993. Our clientele base is growing progressively, and our business portfolio is expanding, leading to the formation of four subsidiaries from one of our Strategic Business Units (SBU). We are expanding our operations to the West African coast, with the goal of unifying and growing the sub-regional insurance market.

A milestone developed in 2008 when we joined the league of publicly quoted companies.  This is aimed at broadening our ownership structure and expanding our operations.  We are also expanding our operations to some African countries through formation of subsidiaries.  Our aim is to unify and expand the regional insurance market.

For now, I will say that we are doing very well amid the challenges posed by the operating environment. Some of our branches are suffering especially those in the Niger Delta and the eastern part of the country. In Aba and Onitsha we are having great problem of insecurity of lives and the same thing in Warri. So our branches in these places are down. But in the north and the south-west things are normal and we are doing very well. We have introduced some products into the market and they are doing well.

A travel insurance policy that is web-driven. We have had to change our way of doing things. All our insurance packages are now web-enabled and what this means is that all our branch operations can be carried out simultaneously with what the head-office is doing. Regency remains the insurance company to invest in. It continues to set the pace. It continues to grow its fundamentals. Unfortunately, whatever the fundamentals, it has not really impacted on the capital market, and as I said earlier, that is more of a perception issue of the insurance industry by investors.

One constant or unchangeable reality that we have seen is that investors who have our shares, irrespective of the situation in the market, irrespective of the prices, they are not ready to sell their shares to anyone. And this is because of the fact that they have confidence in the company. They are not selling because they know the inherent value and the worth of the company. In the last two years we have been very consistent in the payment of dividends and giving bonuses.

Our foray into Ghana

It has been a huge success for us doing business in Ghana. We almost entered into Gambia and Sao Tome & Principe but had to halt because of the developments in the global market and the recession. So we had to put those aspirations on hold because the parameters on which we took the decisions to go to those countries had changed and good investment sense demanded that we stopped such a foray, at the time and retreat.

But in Ghana we continue to make a very dominating stride in that market.

Today our company in Ghana should be ranked number six in terms of premium income generation potential. But the market is also changing and the changes calls for frequent changes in our investment assumptions. For instance, early this year the National Insurance Commission of Ghana called all the CEOs and told them there will be a recapitalisation.

There was one earlier that raised capitalization to a minimum of $1million, but now they are thinking of increasing it to a minimum of $5million although the modalities are yet to be worked out. But Ghana economy devoid of the oil they just struck can never sustain such investment standing alone. What everyone is hoping for is that they will be able to harness the oil and gas potentials of that country in such a way that insurance firms will be able to tap fully into the industry. AS at now nothing of such is happening.

The reality however is that Ghana is fast becoming the investment hub for businesses in the West African sub-region. Nigeria's loss is Ghana's gain. And with the visit of US President, Barak Obama to Ghana, that drew a lot of international attention and investment into Ghana market as they tend to have more confidence dealing with Ghana than Nigeria. You have to giant insurance and reinsurance firms are all in Ghana. And you also see other multinationals moving there.

The reason is that politically Ghana is a lot more stable, and then they have the infrastructure to support businesses, particularly electricity which is far more stable than what we have in Nigeria. And they just struck oil. And then the population is relatively small - the size of Lagos and Ogun states combined. So with such a demography and infrastructure and political stability, Ghana has a lot of advantage over Nigeria in terms of attracting and sustaining businesses.

The state of the Nigerian economy

Essentially, I will say the economy is still struggling. After the global economic recession my thinking is that the interest of foreign investors in the Nigerian economy is yet to be sustained. But then, I have to commend the effort of the CBN to sanitize the money market. And what that has done is that it has created some level of confidence not only within the country but also outside amongst investors and other stakeholders in the economy. But because of what appears as some form of instability in the nation's political sector, there still exists a high level of skepticism by foreign investors as regards the Nigerian economy.

But we must also not that one of the impact of the meltdown has been that a lot of inflow of capital from outside the country had to be stopped because the originators or owners of these funds itself are finding it difficult because the global economic depression is still going on in my opinion even though the USA will want the whole world to believe that it is over. And I am saying this because there is still trouble in Europe.

The Euro as a currency is in trouble and some of the member countries of the European Union are beginning to demand that they should revert to their original or mother currency that was in use before the adoption of the euro as official currency. So because the global economy is still in turmoil and because Nigeria thrives on funds from the global market, we are seeing a slow improvement in the Nigerian economy.

But then we also have to acknowledge that the macro environment is showing a little improvement. With the development in the bond market, a steady fixed interest long term investment has been coming on stream in the recent past and we have to wait to see what impact that will have. Oil revenue continues to plummet.

Whatever reserve we think we have is short-lived because it is like it fluctuates, going up today and coming down tomorrow - no stability. The budget was passed less than two months ago. And remember that for almost the first four months of the year we were in a political uncertainty because of the ill health of the former President. Now when we take the totality of what is happening in the global and domestic economy and you look at these happenings within a political structure that is unstable, it is only then that we can just appreciate while we can't say we are making progress.

The new President, Goodluck Jonathan, has tried to streamline in principles the seven-point agenda and I think he has a good focus trying to tackle the problems of infrastructure, electricity, the Niger Delta crisis and peaceful and credible elections next year. This government has less than a year to wind-up and I think they got it right with their priorities. Electricity is very critical and if they get it we are better off for it. If electricity is stable, a lot of medium and large scale industries that are in comatose will bounce back to live and those that are not yet started will come alive.

If the Niger Delta issue is quelled, then we are going to have security because all the kidnapping issues will be over and investors will return to the region. And then of course credible election will ensure that the will of the people prevails and those coming in know they have the mandate of the people and they must wake up to challenges and to perform creditably because when people know that the only guarantee for them to remain in power is to perform, then they take politics more seriously as the people can also vote them out.

That is why credible elections remain very pivotal to the growth of an economy like ours. With duly elected people in power, you are also going to see a willing follower ship that can translate to growth in the economy. All these are achievable. In effect, if we are able to realise these and build on these efforts then I can see the economy picking up in the nearest future.

Challenges facing insurance industry

One of the greatest casualties of the meltdown indeed was the insurance industry. But I must note that the industry has remarkably improved in terms of stability after the meltdown. Although, you are not likely to see real growth in the industry in the in the short run because such growth is largely dependent on the performance of the macro-economy, but then you can not say it is a dead industry.

Technically, the major bane is that we are grappling with the problem of outstanding premiums. In the past it use to be a problem associated with government accounts, but in the recent time we are seeing private sector accounts finding it difficult to meet their premium obligations. So you see a situation where people are willing to insure because in a time of uncertainty insurance is a priority because this is the time that a little loss to a risk exposure can wipe away the investment, so people want to insure, but then there is the problem of liquidity; there is no money.

So what most insurance companies have done is to device a lot of ways to simplify premium collection. What every one will agree is that outstanding premium is a real issue or problem to the industry.

Let me tell you that for insurance operations, you can broadly look at it in two categories: the long term businesses which are life assurance policies, and then the short term which are the non-life policies. For the life assurance companies which thrive with large funds their ability to grow the funds depends on a cordial investment environment.

So there exists the challenge of management and survival in these times for operators.

Now we have a situation where if you put your money in a bank maybe you have three per cent, if you put your money in capital market it is declining, if you put your money in property people are suspicious of that particular market because we now have a situation where properties of high values cannot be sold. So if you take your money out of this country and tie it to derivatives outside the country and if you can work within the ambits of the law because the businesses that insurance companies can invest into is strictly regulated by the insurance act to ensure that people concentrate on the core business of underwriting risks. So if you work within the ambits of the law the terrain is such that even when the long term funds that you have built over time is there, it is increasingly being depleted.

Why insurance stocks perform poorly

Insurance companies are suffering from a multiplier effect of the jeopardy from the capital market and the crash in stock prices. The reason is that on its own the capital market is bad and then industry assessment shows that the insurance stocks are also suffering. They are playing second fiddle to the oil and gas as well as the banking stocks. So what we now have is that we see volumes being traded, yet it does not result into capital gain in the capital market.

I think the insurance industry or insurance stocks are also suffering from the problem of negative perception. People already make up their mind about the state of the industry. They already feel it is not okay. But that is the thing with perception, you have to work harder to correct it if you are affected. So for me I tell people that by the time insurance companies begin to give good results expectedly, I think the market will begin to discern the true situation in the industry.

I think what investors are now doing after being beaten and the crash in stock prices is that they are rather dealing with tested industries rather than to speculate on relatively younger markets, which however hold promises for the future. For instance, I am sure, a typical investor would rather put his money in First Bank than in any of the new generation banks that promises bigger yield, at least for now. That is the situation that we are seeing.

In the oil and gas industry, the domestication policy of the Federal Government has really helped the insurance industry to retain a larger percentage of the income. And I need to give kudos to NAICOM because they have fought hard to ensure compliance to that domestication policy. So these are the developments in the industry.

For the quoted insurance industry, the last couple of months have witnessed increase awareness of corporate governance and this is traceable to the activities of security and exchange commission and some of the reforms going on in the Nigerian stock exchange, EFCC. So the rule of corporate governance is now highly respected and that has helped the industry to work better than before.

The future of the industry

The future growth and development of the industry will depend to a very large extent on the performance of the Nigerian economy; the two can not work separately, they are interwoven. The environment determines how industries or banks or insurance or indeed any other enterprise performs. At present with the increased capitalization of insurance firms, most of the underwriting firms we have are really in business to perform and add value to the system. The era of insurance firms not paying claims is over; that cannot hold again where insurance firms take clients for granted. Now every one is in business and claims payment is the major reason why insurance exists.

Next, a lot of insurance firms are beginning to take the issue of making investments very seriously.

Local Content Law & insurance industry

I know a lot of people may express worry over the state of preparedness of the Nigerian insurance industry to tap fully into the Nigerian content act in the oil and gas industry recently passed by President Goodluck Jonathan. My response to that is that we are prepared and capable to handle all the associated challenges. Under the old law, the foreign companies took their underwriting businesses outside the country, but under the new law they have to do it with local insurance firms.

At least 40 per cent must be retained in Nigeria. And what that means is that the local market must first be exhausted before you begin to explore utilizing the foreign underwriting firms.

But then, one needs to understand the very nature of insurance because people talk about insurance as if you are taking the risks to your portfolio. Insurance by its very nature thrives on what we call the law of large numbers. You have to spread risks and the spread of risks is a technical matter irrespective of your capital base. You don't pay claims on your capital reserves but rather you pay claims from your technical reserves. So what I am trying to say is that yes the industry is ready for the Nigerian content law.

The local content law will help the insurance industry to develop the expertise that has been absence over the years. But even with the best of structures, insurance still needs to be spread around. So you don't have to expect that because it is called a local content for Nigerian insurance firms to take advantage off that that automatically means we have to take the whole risks. A little loss from NNPC account, a little explosion in Bonga or any of the offshore platforms in the country can wipe out the entire capital base of any insurance company within and outside Nigeria. That is the reality. What that will mean is that for each individual insurance company in Nigeria, it does not mean you retain the exposure in your portfolio, you can still restructure your own and do a local reinsurance and have exchanges. You have to spread risks. It is good in the interest of the entire industry to spread risks.

The problem is more with the human capacity. The training capacity is not available locally only internationally and Nigerian insurance firms must invest in manpower training and development to build that capacity to be able to understand the oil and gas industry and to underwrite it effectively. So forward looking companies have also devised means of systematically training competent hands who can appreciate and underwrite the risks in the oil and gas industry. Also the capabilities to survey those risks are missing or lacking in insurance. That is not insurance, you are talking of marine engineering, and petroleum.

For our company we have sent some staff or seconded them to some oil and gas desks to understudy the industry. And we are exposing them to rigourous training in these fields to gain knowledge and experience both in the Nigerian and foreign industry and I see other competitors doing similar things. In the next two years, I think we will have enough of that capacity locally. In essence, the Nigerian content act in the oil and gas industry is a very good thing to happen to the insurance industry.

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