Agusto: Possible election violence poses downside risk for Nigerian insurers

The Nigerian insurance industry is gearing up for a challenging year ahead, as political uncertainties loom large on the horizon. Agusto & Co, a leading credit rating agency, has highlighted the potential downside risks posed by possible election violence for insurers in the country. Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co, recently discussed the company's 2023 industry report and shed light on how insurers are preparing to weather the storm. The insurance sector in Nigeria witnessed robust growth in 2022, with estimated gross premium income surpassing the 700 billion Naira mark. Several factors contributed to this growth, including the post-pandemic economic rebound, increased awareness about the importance of insurance, and regulatory efforts to promote insurance penetration. The devaluation of the Naira also played a role in boosting gross premium income in Naira terms. However, despite the impressive revenue growth, profitability indices were impacted by high inflation rates. The cost of replacing assets and rising operational costs due to inflation weighed on insurers' profitability in 2022. Looking ahead, regulatory developments are expected to shape the sector in 2023. Agusto & Co anticipates regulatory pronouncements on capital requirements, with a focus on risk-based capital to align capital adequacy with the level of risk exposure. Additionally, insurers are exploring potential partnerships with banks to deepen their reach in the retail market and enhance product distribution. Collaborations between insurers and banks could help insurers reduce distribution costs and leverage banks' digital channels to market insurance products. As Nigeria approaches the upcoming elections, the political environment is poised to have a significant impact on the insurance industry. The election year is expected to be dominated by political activities, with limited room for governance in the first half of the year. The handover of power in May and subsequent legislative activities are likely to influence the policy landscape for insurers throughout 2023. The industry will need to adapt swiftly to any major political shifts and navigate the challenges posed by the evolving political climate. Despite the headwinds on the horizon, the Nigerian insurance sector remains resilient and prepared to confront the uncertainties of the year ahead.