Low insurance penetration rates, good growth prospects, a relatively stable political climate and an improving regulatory landscape, is making Nigeria a country of interest to foreign investors seeking to capitalise on untapped insurance demand, A.M Best has said.
In its report titled, ‘Nigeria’s Insurance Sector Faces Economic Challenges, but New Government Improves Prospects,’ A.M Best noted that new insurance licenses are no longer being issued, owing to the high number of insurers operating in the relatively small sector, hence any prospects entering the market would have to do so through the acquisition of existing insurance entities.
The report said, “Additionally, domestic players are increasingly reassessing their strategies to achieve rapid growth and are likely to consider consolidation as a means to achieve further expansion. In the past two years, the industry has witnessed the entrance of a number of foreign players into the market.
Meanwhile, the number of insurers in the industry has shrunk over the past 20 years, much of which was a result of NAICOM’s increase in minimum capital requirements in 2007 that saw participant numbers reduce to 49 from 97 in 2005.“A.M. Best believes that consolidation is likely to continue, abetted by the entrance of foreign investors seeking global expansion to diversify their business.
For domestic insurers, this enables them to utilise international practices and technical expertise, further aligning the Nigerian market with that of the global operating environment. However, international investors targeting Nigeria will need to remain mindful of the inherent challenges overshadowing the insurance market, including the uncertain economic environment.
While the existing retail portfolios of domestic players may be considered attractive as these lines of business are relatively untapped, significant investment is required to establish strong distribution channels to enable insurers to build sufficient scale.
This will require investors to have a long-term view of their positions in the market. Furthermore, the low, albeit improving, level of transparency in the market is likely to be a hurdle in undertaking sufficient due diligence on potential acquisition targets.