Going by the realization that insurance business is no longer a game play and the swinging wield stick of the National Insurance Commission (NAICOM), underwriters have concluded their reinsurance treaty renewals for the 2010 in spite of hard terms from reinsurers.
Reinsurance treaty is a contract between a reinsurer a ceding company (insurer) specifying the manner in which insurance written on various risks is to be shared.
Vanguard investigations showed that insurance companies have already wrap up their treaties for 2010 in readiness for business just as reinsurance companies insist on applying loss participation ratio clause.
Reinsurers had often admonished underwriting companies to charge appropriate premium as a way to meet future obligations to customers and stay afloat else they would not be responsible for any claims that is above the aggregate limit which explains the loss participation clause.
For example, the reinsured bears 50 per cent of all losses that fall within the band of loss ratios from 95 per cent to 115 per cent with a maximum contribution of 10 per cent of earned premium ceded.
Mr. Adeyemo Adejumo, Managing Director of Continental Reinsurance Plc, said that the only way the insurance industry in Nigeria can survive as risk bearers is to charge appropriate rates to reverse the trend of losses experienced last year.
Adejumo said, â€œEconomic crisis as we are presently experiencing will cause unhealthy rivalry and competition among the players in the insurance sector. A number of insurance companies are charging uneconomical rate in order to snatch business from competitor. An example is the recent happenings where the industry charged a premium of N 58 million on a business of N 200 billion sums insured.â€
â€œSince insurance business is international in nature, the free fall of local currency to major currencies of the world soared up the cost of getting reinsurance cover from both within and outside the nationâ€™s shore.â€ He said: â€œLarge claims experienced by insurance companies in recent times have awakened the call on the need for underwriters to charge economic rate in order to make underwriting profits.
Mr Fola Daniel, Commissioner for Insurance in an interview with Vanguard in Abuja recently said that the insurance sector faced a major challenge of paying unusually large claims on some losses that occurred in the industry, which hiked its reinsurance treaty rates.
He, however, added that contrary to speculations on the effects that it might have on the companies, it would not have a sinking effect on the Nigerian insurance industry because all the risks were reinsured and a larger proportion of those risks were reinsured abroad.
â€œIn 2009, we had some worrisome developments. We had some very large and unusual claims, which include the Nigerian Bottling Companyâ€˜s claims. The effect that this will have on the insurance industry is that the industryâ€˜s purchase of reinsurance will become more expensive,â€ Daniel said.
According to him, â€œThis is the only major negative effect the huge claims will have on the sector, because the local insurance companies will not have to pay more than the retention they tookâ€
It will be recalled that in 2009, the sector paid a single claims of N 6.8 billion to the Nigerian Bottling Company (NBC)â€™s plant in Eyaen near Benin City from a fire incident, the highest single claim ever paid on a risk in the sector, which was insured by a consortium of seven insurance companies
He further explained, â€œOur purchase of reinsurance will become more expensive because for a reinsurance that paid several billions as against few hundreds of millions they collected from you, if you want to buy a renewal for 2010, it will be very expensive and we have seen that happen.â€