Staff Writer
In the first quarter of 2023, or Q1’23, Nigerian insurers exceeded the regulatory maximum of 30% by transferring to their international counterparts 74.8% of the profits from oil and gas firms.
According to data from the National Insurance Commission (NAICOM), local insurers received N65.4 billion in premium income from the oil and gas sector in the first quarter of this year, but transferred N48.9 billion, or 74.8%, to foreign insurers.
The N25.16 billion, or 50.1%, transferred to foreign insurers from the N50.2 billion in premium income from oil and gas in Q1’22 stands in stark contrast to the development, according to an analysis of the first quarter report provided by the National Insurance Commission, NAICOM.
According to experts, the dollarization of the oil and gas industry, which has a significant impact on local retention, is to blame for the development.
As you may remember, the local content rule mandates that 70% of all insurance risks related to the oil and gas industry must be covered in Nigeria by licensed insurance companies, while the other 30% may be ceded to foreign insurers.
Speaking about the situation, Mr. Olasupo Sogelola, Managing Director/Chief Executive Officer of International Energy Insurance, noted that the ongoing depreciation of the naira and the growing difficulty in obtaining foreign currency make it challenging to adhere to the local content law’s requirements.
According to him, since the oil and gas industry deals in dollars, retention decreases as the value of the risk increases as the value of the Naira weakens.
According to Sogelola, Nigerian insurance companies have limited capacity because many businesses are still struggling to raise enough money to operate in the oil and gas sector.
The dollarization of the oil and gas industry, according to Sogelola, has an impact on how claims are paid since it compels insurers to pay higher claims.
Claims are also impacted because, when they finally materialize, you will have to pay more for the claims you have incurred but have not yet paid.
The participation in the oil and gas industry is actually declining, according to Mr. Adebisi Ikuomola, Deputy Managing Director, Technical, Anchor Insurance. Full participation, however, can only be ensured if the value of the dollar declines or the capitalization of insurers increases.
