Former Commissioner for Insurance, Fola Daniel has said that the inadequate number of reinsurance companies is part of the reason for the huge capital flight that has stripped the local market of the required financial capacity to absorb larger risks.
Nigeria, until the entry of FBS Reinsurer in 2020 has three reinsurance companies -African Re, Nigeria Re, and Continental Re but only one is a full-fledged Nigerian company in a market that boasts over 50 insurance companies.
The Nigerian insurance market underwrote N490 billion or $1.3 billion business in 2019 which would have been more if there exist more reinsurance firms to retain more risks. The 2019 figure was considered low for Africa’s largest economy and its population of over 200 million that is regarded as an asset to propel an insurance industry.
The gap, which no practitioner in the industry has attempted to bridge, has hence put the market in a disadvantaged position to exploit the opportunities in the Nigerian Oil and Gas Industry Content Development (NOGICD) Act 2010.
This prompted Daniel’s return to the insurance market to lead the new FBS Reinsurer that is coming 35 years after Continental Re’s entry into the market.
The NOGICD Act which provides that 70 percent of oil and gas businesses from Nigeria must be localized before the balance is taken offshore, contains huge opportunities which the local market is still unable to exploit.
The Nigeria Content Development Act of 2010 cedes 70 percent minimum of every insurable risk in the oil and gas sector to the Nigerian Insurance industry because of the importance and huge income from oil and gas.
From a position and privileged knowledge at NAICOM, some of the risks are within 100 percent and there is a good number of high risks in the sector.
In most cases, according to Daniel, the insurance market owing to low capacity, struggles to take 20-25 percent and so the gap is between the capacity of the market and what apparently goes offshore.
“Another issue is that we have few in the Reinsurance sub-sector of the industry and the number doesn’t support the Nigerian content development initiative”, stated the former NAICOM boss who noted that not all of the existing players in the reinsurance sub-sector are part of Nigeria’s local content owing to their ownership structure and also not taking part in large scale.
“They do things on the basis of their needs. These are players that can not be said to part of the Nigerian content development. So for the Nigerian content to be given a good shot, it is obvious that we need more local insurance companies.
And as Commissioner, I did everything to encourage the industry to come together and even the chieftains of the industry. Two, three persons to come together and form a Reinsurance company but that effort wasn’t successful”.
This reason prompted the entry of FBS Reinsurance company to come and reduce the capacity gap in the industry and add value to the Nigerian content act.
“We are a Nigerian company, we are going to do international business and we must pay tax to the federal government. We are not averse to employing foreigners, but we are going to focus on Nigerians, and it is obligatory to maintain the local content development act”, the former CFI said.
Daniel who had foreclosed active participation in the market after completing two tenures as the head of the sector regulatory body in 2015, returned to the industry at the twilight of 2020 with FBS Reinsurer to help in bridging the yearning gap in the industry.
“When I left at the end of July 2015, all I was thinking was to have a very good rest and many people were trying to persuade me to return because of boredom. But I am never bored, I enjoyed every bit of it.
Wake up in the morning, have breakfast, and go back to bed.
Then I go and play some golf. But by end of October through early November 2016, three of us that are retirees looked back at the market of Ghana and Nigeria respectively and noticed a Reinsurance gap that we could assist to bridge.
So from 2016, it was becoming apparent that I could be playing some role in the insurance industry again”.
Daniel was thrust into leading the company as its managing director following the inability to get a qualified person to manage the business in its formative years.
“I did not plan to return as a CEO, but a promoter. We searched from 2017, but all the persons we earmarked for the CEO role do not want to do that and my friends who also do not want to put money in the laps of people we don’t know, decided that I should lead the company at its initial period.
That is how I got drafted in to play this pivotal role. Anything that is worth doing, is worth doing very well. They said I should steer the affairs of this company and put it on a good footing and later, we can pass on the baton”.
The FBS Boss stated that the capacity of the market shrunk further with the exit of The Wheel, the NNPC offshore subsidiary which also takes from the Corporation’s risks before the remaining parts are ceded to the foreign market.
“The Wheel complements the Nigerian content and share of the risk taken by the company would ordinarily have gone to the London market. So the exit of The Wheel has even created a gap which the coming of the FSB Re-insurance will try to reduce”.
He urged for more entrants as only the FBS Re cannot bridge all the gaps, adding there is always room for new entrants.
“Some five new insurance companies just came on board. So there is no way we can say we have reached the end of the road. There is always room for new entrants to come and play in the market. So I will say that FBS Re cannot do it alone, we need more to come into the market”, Daniel said.
FBS Re’s current capitalization is N10 billion, and ready to go the whole hog of N20 billion as prescribes by the regulator under the current reform that is left hanging.
Daniel said that N20 billion capitalization is the short term for the company that aims at N50 billion in the long term because Reinsurers need a huge capital to play in the oil and gas sector where there are high-valued risks.
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