Peter  Egwuatu

The Group Managing Director, BGL Plc, Mr. Albert Okumagba has called on Nigerian insurance companies to ensure that the industry is well positioned to maximize returns on associated assets created from the liabilities undertaken by them.

He made the call last week at the Nigerian Content Forum 2010 with the theme ‘Nigerian Content Act: Floodgate of Limitless Opportunities’’, organised by BusinessDay, and ESQ Legal Practice.

Speaking on ‘’A robust insurance sector and capital investments in an emerging economy’’, Okumagba said ‘’I’ve focused more on insurance because that is where the opportunity lies and because I believe that fund management as stated in the Act is predominantly a treasury function’’

To effectively harness this opportunity, the Group Managing Director, BGL Plc said insurers must be positioned to maximize return on associated assets created from liabilities undertaken by insurance companies.

He, however, stressed that insurers would require, not only a virile financial system with investable assets, but also sound ancillary investment management. services from asset/fund management firms that can support the insurance companies at maximizing returns on the ensuing ALM risk from underwriting capital investment in Nigeria.

According to him, “ the huge potential of the insurance business has remained untapped in Nigeria, largely attributable to the absence of an enabling environment for insurance, the lack of commitment to creating and implementing policies targeted at developing the industry and the problem of inadequate capital”.

He pointed out that the regulator of the insurance industry was targeting a whopping N1.1 trillion (US$7.5bn) insurance market, 30 per cent in insurance penetration, 3 per cent in insurance contribution to GDP and growth in insurance density at least N7.500 per individual by 2012.

He noted that section 49 of the Nigerian Content Act specifically stated that all operators, alliance partners and Nigerian indigenous engaged in any form of business, operations, or contract in the Nigerian oil and gas industry shall insure all insurable risks related to its oil and gas business, operations or contract within and through an insurance broker or brokerage firm or an insurer registered in Nigeria under the provision of Insurance Act 2003.

He further pointed out that Section 52 (1) of the Act  mandates all operators and any other engaged in any operation, business or transaction in Nigerian oil and gas industry requiring financial services to retain only the services of Nigerian financial institutions or organisations, except where to the satisfaction of the Regulator. He noted that ‘’this is impracticable’’.

Okumagba noted that the directives clearly indicated that no risk should be placed offshore without the approval of the National Insurance Commission (NAICOM) and the Nigeria Content Monitoring Board (NCMB).

The investment banker pointed out that oil and gas insurance took a leading position in the level of contribution to gross premium when it accounted for 18 per cent of the industry premium in 2006 although it fell to 13.33 per cent in 2007 as the restiveness in the Niger Delta got to its head.

The increase, he said, was believed to be the effect of the Federal Government’s content policy which stipulated that oil and gas companies must cede all risks to local underwriters. In line with the Federal Government’s objective of increasing the local retention ratio of the oil and gas insurance business to 70 per cent by 2010, he said the local content policy which was signed into law in April, 2010 could drive this class of business to number one in the shortest possible time.

‘’This conclusion is based on the projected capital expenditure (CAPEX) of the oil and gas industry of $15 billion per annum’’, he said, adding that insurance assets in the oil and gas sector has been estimated to grow at an annual average of $15 billion.

By the end of 2009, he said industry assets totalled $133 billion of which $68.08 billion were insured locally, representing 51.1 per cent of total insurable assets.

While this percentage is above the 45 per cent Nigerian Content level expected in 2009, Okumagba who was represented by Tam Alazigha, the Head of Group Corporate Strategy, BGL Plc, noted with dismay that it was far below the expected 70 per cent by 2010.

He however, noted that the nation’s fund management industry was sufficiently skilled, capitalised and adequately regulated to support the insurance companies at maximizing returns on the ensuing ALM risk from underwriting capital investment in Nigeria.

‘’This will also depend on the insurance companies operating within a portfolio governance structure that ensures efficiency in the selection of counterparties-fund managers, brokers, e.t.c. defines responsibilities, consistently evaluates compliance with set targets and rules’’, he said.