Recapitalisation, policy enforcement to drive insurance revenue uptick in FY'25

The Nigerian insurance industry is poised for growth in the fiscal year 2025, with expectations of maintaining an upward trajectory after hitting 1.1 trillion naira in revenue in 2024. A recent report by Agusto & Co highlighted the key factors that are expected to drive this growth. Ayokunle Olubunmi, the Head of Financial Institutions Ratings at Agusto & Co, shared insights on the report during an interview with CNBC Africa. One of the key drivers of revenue growth in the insurance sector is the enforcement of compulsory insurance policies. The industry has witnessed growth across all business lines, including motor, fire, and oil and gas. This growth has been supported by an increase in premiums, in line with the rising inflation trajectory in the country. As the value of assets increases, insurance companies have adjusted their rates accordingly, resulting in a positive revenue outlook. Another crucial factor highlighted in the report is the impact of the Nigeria Insurance Reform Bill, currently before the National Assembly. The bill aims to modernize and strengthen regulations governing the insurance industry. It seeks to harmonize existing regulations and enhance the oversight functions of the regulatory body, the Nigeria Insurance Commission (Nikon). One significant aspect of the bill is the proposed increase in the minimum capital requirements for insurance companies. The minimum capital for life insurance companies is set to rise from 2 billion to 15 billion naira, non-life insurance companies from 3 billion to 25 billion naira, and reinsurance companies from 10 billion to 35 billion naira. While some industry players have expressed concerns about the substantial increase in capital requirements, the consensus is gradually shifting towards the understanding of the need for recapitalization. The move towards risk-based supervision is also viewed as a positive step, as it aligns capital requirements with the level of risk in insurers' portfolios. This approach is similar to the capital adequacy ratio used in the banking industry, where capital adequacy is determined by the risk profile of the institution. The implementation of the Nigeria Insurance Reform Bill and the transition to risk-based supervision are expected to have a transformative impact on the insurance sector. The recent legislative milestones achieved in passing the bill through the House of Representatives and the Senate indicate a proactive approach towards industry regulation. As the reforms take effect, the industry is likely to witness mergers and acquisitions (M&A) as part of the recapitalization process. Foreign investors have shown interest in the Nigerian insurance market, attracted by the country's large population and growth potential. The low penetration rate in the industry presents a significant opportunity for insurers to expand their market share and offer innovative products to consumers. The impending policy changes and regulatory reforms are expected to enhance the attractiveness of the sector to foreign investments, further stimulating competition and product innovation. In conclusion, the Nigerian insurance industry is on track for a period of growth and transformation in FY'25. The combination of recapitalization efforts, policy reforms, and increased regulatory oversight is set to drive revenue growth and improve the overall stability and efficiency of the sector.