Regulation, claims ratios expose gaps in insurers’ investment portfolios

Regulation on limitation in offshore investments of insurance funds and a rising claims outlay are eroding insurers’ profit margins and putting their investment officers on the rope, according to industry watchers and analysts.

Analysts say in the advanced economies of America and Europe, insurance companies are known to incubate huge funds deployed in building critical infrastructure requiring long gestation periods including mortgages for housing, road, rail, power and aerodromes among others.

They however, regret that the scenario does not play out in the same way in Nigeria where the lack of depth, poor regulatory framework and lack expertise combine to make insurance firms play in the fringe when it comes to yields from investment.

Paschal Egerue, a chartered insurer and financial analyst, remarked that tight regulatory environment combined with conservative and lethargic disposition of insurance practitioners on staffing are robbing the insurance industry of the much-needed high net worth income from investment.

“In an emerging market such as we have, we ought to be seeing a flurry of investments but this is not so regrettably. Rather what we have is that the insurance companies are now so weak and vulnerable to constant cherry picking through capital that are migrating from the saturated market of South Africa and other areas.

“Nigerian insurance companies are not investing enough. The business climate is not fertilizing investible funds and appetite for risk taking,” Egerue, who is also council member of Nigerian Council of Registered Insurance Brokers (NCRIB), said.

Businessamlive learnt that insurance companies world over are known to thrive on the doctrine of large numbers in structuring compensation for clients who suffer loss, as well as mobilising funds for investment in other sectors.

For example Linkage Assurance Plc has complained of dwindling earning from investment when it reported a drop of 36 percent  as investment income dropped from its 2015 level of N1.4 billion to N951 million in 2016.

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Cornerstone Insurance Plc, which suffered heavy loss exposure in 2016 due to insurgency in Nigeria’s North-east and South-south zones said it depended heavily on its retail businesses as opposed to income from investment to remain afloat.

The investment climate in Nigeria is cloudy for obvious reasons of insecurity, poor regulation and corruption. Under this climate, insurance companies are facing multiple challenges. There is shrunk of business and investible fund. There is constraint of regulation on the need for diversification especially the restrictions in offshore investment and the fact that much claims are being recorded.

High claims record is due to insecurity and fraud and may be classified as bad in the international insurance and reinsurance market.

“The country is almost in a war situation and services such as insurance may be headed to doom. The regulator should wake up and take position otherwise there may be no serious Nigerian insurance market soon. The fragility of the market is all so obvious to see,” Egerue warned.

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