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Subscription markets chop off 90% oil, gas insurance placements

by Patience SAGHANA

Against all odds being faced by local insurance industry in oil and gas insurance business compounded by subscription market which often rob the local market of 90 percent placement, Nigerian insurance industry is still able to stamp its feet in US86billion oil and gas insurance business
Subscription market often strip the local market of huge premium as it describes the commercial insurance and reinsurance market in London by which a single risk is underwritten by a number of underwriters, both at Lloyd’s and in the insurance company market subscribing percentage lines of the risk on a several, not joint, basis.
This method of placing risks typically requires a broker to act as intermediary between the insured and the insurers and as between the reinsured and re-insurer. It also typically requires one of the underwriters to act as a leader to agree the terms of cover and the policy wording, and to make decisions on claims.
The $86billion sum insured of the Nigerian National Petroleum Corporation (NNPC) and its joint ventures has the active participation of Nigerian insurance companies in the business.
A breakdown of the $86billion total joint sum insured of NPPC and its joint ventures showed that $39.53billion for NNPC CIP; $5.05billion for Mobil Operational; $9.64billion, Shell Operational; $9.47billion, Nigerian LNG; $4.05billion, Total Akpo; $5.92billion, Total Usan; $4.37billion, Shell Bonga; $4.70billion, Chevron Agbami; $2.09billion, Total OML 58 and $1.18billion, Tullow Jubilee Field.
But the required capacity to underwrite oil and gas business is almost exclusively provided by the subscription market, according to Mr. Ken Aghoghovbia, Regional Director (West African Office), African Reinsurance Corporation.
Aghoghovbia said the 90 percent placement in the subscription market is true in the upstream sector where the subscription market  mainly London, Europe and New York control over 90 percent of placements.
Aghoghovbia  in a paper he delivered title, ‘The underwriting of Oil and Gas Risks in Anglophone West Africa’  at the West African Insurance Companies Association (WAICA)’s conference held in Ghana recently said, “Most of the country’s major oil and natural gas projects (95%) are funded through the Joint Ventures (JVs) with the NNPC as the major shareholder. Foreign companies operating in JVs with the NNPC include SPDC, ExxonMobil, Chevron, Conoco Phillips, Total, Agip and Addax Petroleum. The remaining funding arrangements comprise production sharing contracts (PSCs), which are mostly confined to offshore development programme”
He noted, “Those risks are easily in excess of $1 billion. Thus Loss Limits and Maximum Probable Loss are often employed to underwrite same risks.  For a class of business where reinsurance treaties are not easy to come by, most insurers rely solely on their shareholders’ fund to write a net line. Yet, apart from Nigeria, where the minimum capital required to transact non-life business is about US$20m, all other countries in the region have at the most 5 percent of that figure”
Mr. Adeyemo Adejumo, Managing Director of Continental Reinsurance Plc corroborated Aghoghobvia saying that the international scope of the subscription market means that the regulatory issues impacting its participants stretch beyond the rules of the UK regulator, the Financial Services Authority (FSA).
Adejumo reiterated, “Many non-EEA companies write business in the London market on a subscription basis, although they are not (and indeed, do not need to be) directly authorised by the FSA to carry on that business. It is apparent that there is widespread confusion as to the regulatory position of such foreign insurers and re-insurers operating within the UK and the EEA”.
Nigerian insurance companies upped the ante of participation in oil and energy insurance business in Africa with the country’s underwriters leading the top five oil accounts on the continent with a whopping N24.6billion.
Analysis of the top five oil insurance accounts in the continent showed that Lasaco Assurance Plc is leading the USAN oil fields with a premium income of $82,922,706.67 (N12.4billion); Leadway Assurance is holding the ace with the Nigerian National Petroleum Corporation (NNPC) with $48,598,716.47 (N7.2billion) and OML 58 insurance account of $3,138,012.71 (N470.7million) along with foreign underwriter, HSBC; and Guarantee Trust Assurance (GTA) leads on Total Insurance account with $5,939,094.69 (N890,9million) whilst the Kosmos (Tullow) insurance account is being lead by SIC Insurance Company, Ghana and RKH Insurance Services.
Out of 14 African countries that are in the oil and energy insurance business, Nigeria insurance companies still remain the largest of them all as they are actively participating in the oil and energy insurance business in the continent.
Nigeria’s insurance industry witnessed a major boost in its premium generation with the appointments of 21 underwriters by ExxonMobil to underwrite the risks from its ERHA projects for 2010. The account led by Lasaco Assurance puts the indigenous insurance industry in solid stead to secure a significant slice of the over $480 million paid annually as premium by Nigeria’s oil industry. The development which is an indication of growing confidence of oil companies on local insurance operators is hoped would go a long way in addressing huge capital flight that has faced the sector over the years


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