As renewals for 2013 financial year commences, there are indications that re-insurance companies have edged up their re-insurance rates for oil and gas risks for Nigerian underwriters, Sweet Crude has learnt.
The increase in rates is not unconnected to the fact that oil and gas insurance claims for last year were huge even as insurers are still grappling with how to settle most of them.
Accordingly, insurers are bracing up to the challenge even as they hope that the claims experience might decrease in the current financial year.
Managing Director of Lasaco Assurance Plc., Mr. Olusola Ladipo-Ajayi said, “I believe the business will improve, competition will also force foreign re-insurers to relax their terms and conditions, if only the experience is good, but if the market continues to be harsh as it is now, that is if the claims experience continues to be bad, we may still have to live with it for some time.”
Ladipo-Ajayi said that oil and gas business is now open and the people are coming to see the nature of risks involved and are coming to terms with it.
It will be recalled that Commissioner for Insurance, Fola Daniel, said that the effect of an increase in offshore premium rates on the insurance industry is that “our purchase of re-insurance cover will become more expensive, because for a re-insurer that paid several billions as claims against few hundreds of millions he collected from you, if you want to buy renewal for next year, it will be very expensive and we have seen that happen in the local market.”
Due to the huge claims profile, the National Insurance Commission, NAICOM, restricted local insurance firms participation in oil and gas risk to five per cent retention of their respective shareholders’ fund.
The measure taken by NAICOM, according to Ladipo-Ajayi, may have also been influenced by the hike in rates by more than 50 per cent, and hardening of conditions and terms for accepting businesses from the local market by the world re-insurance companies last year.
Under such scenario, many of the underwriting companies could not purchase re-insurance cover for retention of large proportion of the businesses, which led to loss of business opportunities to foreign underwriters.
Re-insurers act as financial backstop to insurance companies, helping to pay for big claims in return for part of insurers’ premium. They underwrite more than 60 per cent of the risks carried by the underwriting firms.
Ladipo-Ajayi, said that most of the businesses are still going abroad because of the high frequency of claims portfolio in the oil and gas underwriting.
According to him, “We are having more claims outstanding now and that is giving NAICOM some concern, hence the commission has insisted that, we maintain the rules of not retaining more than five per cent of shareholders’ fund.”