CHARTERED INSURANCE INSTITUTE OF NIGERIA

2014 INTERNATIONAL EDUCATION CONFERENCE

REDIMENSIONING THE INSURANCE INDUSTRY CONTRIBUTIONS TO THE

NATIONAL ECONOMY

• Part 1: Overview of The Nigerian Economy

• Part 2: Review of The Insurance Sector

• Part 3: Repositioning The Insurance Sector

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PART 1: OVERVIEW OF THE NIGERIAN

ECONOMY

THE NIGERIA ECONOMY• Nigeria is a relatively large economy with apparently

strong growth rates.

• GDP was recently rebased with GDP of N80.3 trillion ($509.9bn)

• The rebased GDP captured some new sectors notably Telecommunications and Nollywood.

• Nigeria now ranks as the 26th biggest economy in the world and is the largest economy in Africa.

• At least 25% bigger than South Africa ($408bn)5

GDP OF SOME COUNTRIES ($BN)COUNTRY GDP COUNTRY GDP COUNTRY GDP

USA 14,991 Brazil 2,477 Nigeria 509

China 7,318 India 1,873 S.Africa 408

Japan 5,867 Russia 1,858 Egypt 230

Germany 3,601 Mexico 1,153 Algeria 189

France 2,773 Indonesia 847 Angola 104

UK 2,445 Turkey 775 Morocco 100

Italy 2,194 Saudi Arabia

577 Ghana 39

Canada 1,736 Malaysia 288 Kenya 34

Norway 486 Ivory Coast 24

Singapore 240 Cameroun 25

Botswana 17

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BUT THE STORY IS FAR FROM PLEASANT• Nigeria is also an economy with major contradictions and

weaknesses despite its size

• The economy, in spite of its size, remains heavily dependent on crude oil which accounts for more than 90% of exports

• Size means little without a high quality of life

• On a per capita basis, we are still a low income country with GDP of just around $3,000

• There is significant inequality and very high poverty intensity

• Poverty and inequality will persist if corruption is not addressed. Sadly, very little attention is being paid to corruption.

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TRANSPARENCY INTERNATIONAL RATINGS

COUNTRY SCORE GLOBAL RANKINGBotswana 65% 30th Namibia 48% 58th Ghana 45% 64th South Africa 43% 69th Liberia 41% 75th Nigeria 27% 139th

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POOR QUALITY OF LIFEHEADCOUNT LIVING IN

ABSOLUTE POVERTY (N6,000/MONTH)

South Africa 14%Togo 28%Senegal 30%Ethiopia 31%Uganda 38%Nigeria 54%Sub-Saharan Africa

49%

Source: World Development Reports; World Bank – 2008-2011

LIFE EXPECTANCY AT BIRTHGhana 64 yearsGabon 63 yearsSenegal 59 yearsGambia 58 yearsTogo 57 yearsBenin 57 yearsNiger 55 yearsBurkina Faso 55 yearsSouth Africa 55 yearsNigeria 52 years

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10 WORST CITIES TO LIVE INCITY LIVEABILITY SCORE % RANKING

Damascus, Syria 38.4% 1st

Dhaka , Bangladesh 38.7% 2nd Lagos, NigeriaPort Moresby, Papua NG

38.9%38.9%

3rd

3rd Harare, Zimbabwe 39.4% 5th

Algiers, Algeria 40.9% 6th

Karachi, Pakistan 40.9% 6th

Tripoli, Libya 42.8% 8th

Douala, Cameroun 43.3% 9th

Teheran, Iran 45.8% 10th SOURCE: INTERNATIONAL ECONOMIST

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HIGH GROWTH RATES HAVE NOT DELIVERED HIGH QUALITY OF LIFE

YEAR GDP GROWTH RATE

2009 6.96%2010 7.98%2011 7.43%2012 6.58%2013 6.50%2014 6.75%

• 2009-2012 (NBS)• 2013 and 2014 : Budget

Office Projections

• In spite of healthy GDP growth rates, poverty is still pervasive

• 69% living below the poverty line – NBS estimates

• There is growing realization that growth has been happening without inclusion.

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GDP (PPP)OF SOME COUNTRIES ($)COUNTRY GDP COUNTRY GDP COUNTRY GDP

USA 48,110 Brazil 11,640 Nigeria 2,964

China 7,319 India 3,650 S.Africa 10,960

Japan 33,670 Russia 21,920 Egypt 6,280

Germany 39,460 Mexico 16,590 Algeria 8,660

France 35,250 Indonesia 4,640 Angola 5,920

UK 35,600 Turkey 17,110 Morocco 4,950

Italy 32,670 Saudi Arabia

24,270 Ghana 1,870

Canada 40,420 Malaysia 16,050 Kenya 1,710

Norway 60,390 Ivory Coast 1,790

Singapore 60,690 Cameroun 2,360

Botswana 14,750

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PART 2: REVIEW OF THE INSURANCE SECTOR

Source: Swiss Re: World Ins Report 2013

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NIGERIA ANGOLA KENYA S.AFRICA2011 2012 2011 2012 2011 2012 2011 2012

Insurance Penetration

0.6% 0.7% 1.1% 1.0% 3.2% 3.1% 12.9% 14.2%

Urban Population Growth

4.0% 4.0% 4.5% 4.4% 4.4% 4.4% 1.9% 1.9%

INSURANCE PENETRATION

INSURANCE DENSITY SWISS RE: WORLD INSURANCE REPORT 2013

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Sector Profile (Institutional)• The industry has a total of 57 underwriting

institutions comprising 16 life insurers, 30 non-life/general insurers and 11 composite insurers.

• It also has an active secondary arm comprising 2 Actuaries, 54 Loss Adjusters, 569 Brokers and 2,454 Registered Agents.

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Sector Profile (Business Volumes)• Gross Premiums have grown by 25% from 2008-2012

reaching N300bn in 2012

• However this is still way below the industry target of N1 trillion

• The industry was just 0.06% of GDP compared to its target of 3% of GDP. It was 0.048% in 2008

• According to Mr. Fola Daniel, the Nigerian Insurance Commissioner, only 800,000 adults have policies, a ratio of 0.48%

• Contribution to national economy is minimal

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SECTOR PROFILE – CAPITAL MARKET PERFORMANCE

• Market Capitalisation of N200bn (US$1.36bn) in 2006; grew to N550bn ($3.74bn) in 2008

• Today, it is less than N150bn

• Lost substantial capital to the 2008 meltdown

• The 2012 earnings performance suggests a delayed recovery – Average PAT of N448m and EPS of 7 Kobo

• Market capitalisation is a discount of 40% of book value.

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Sector Profile• It is not very popular

• Its reputation has improved but still needs further improvement

• There was a lot of optimism after the banking consolidation with the expectation that insurance will be the next growth sector. This hasn’t materialised.

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PART 3:REPOSITIONING THE INSURANCE

SECTOR

WHY IS THE INSURANCE SECTOR UNDERPERFORMING?

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INTERNAL FACTORS• Ethical Standards

• Impaired Capitalisation

• Fragmented Industry With Many Marginal Players

• Weak Growth Strategy

• Industry cohesion is strengthening, but still sub-optimal

• Gaps in Human Capital Management Strategy

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EXTERNAL FACTORS - OVERVIEW• Insurance is more positively correlated with economic

well-being of the individuals than it is to general growth rates

• Hence growing the insurance business becomes more challenging in an economy facing high poverty intensity and poor quality of life. budget theme is critical for the insurance sector

• It is thus important for the insurance sector to address the key question: How can we achieve substantial growth within the current scenario of high poverty intensity and low quality of life?

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GDP (PPP)OF SOME COUNTRIES ($)COUNTRY GDP COUNTRY GDP COUNTRY GDP

USA 48,110 Brazil 11,640 Nigeria 2,964

China 7,319 India 3,650 S.Africa 10,960

Japan 33,670 Russia 21,920 Egypt 6,280

Germany 39,460 Mexico 16,590 Algeria 8,660

France 35,250 Indonesia 4,640 Angola 5,920

UK 35,600 Turkey 17,110 Morocco 4,950

Italy 32,670 Saudi Arabia

24,270 Ghana 1,870

Canada 40,420 Malaysia 16,050 Kenya 1,710

Norway 60,390 Ivory Coast 1,790

Singapore 60,690 Cameroun 2,360

Botswana 14,750

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THE KEY STRATEGIC QUESTION FOR THE INSURANCE INDUSTRY

• Are we going to be beneficiaries of economic growth growth?

• Or

• Are we going to be both catalysts/engineers of growth and beneficiaries of same.

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HISTORICAL PERSPECTIVE• So far, the insurance industry has been peripheral to

major transformational initiatives in key sectors

• The results of this approach are evident in the current profile of the sector

• The Power sector is set for a major transformation. It will be slower and more difficult than the Telecoms sector

• But it will dwarf the telecom sector within a decade

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1. Based on current policies, which sectors will drive growth over the next 10 years in Nigeria?

2. In which of these sectors will the insurance sector play a leading or catalytic role?

3. Are there sectors crucial for the growth of the insurance sector but which are yet to be positioned for growth?

4. How can the insurance sector be a catalyst for such sectors in 3 above?

5. How can we be positioned to be major investors in those sectors, such that investment will drive premium growth?

8 PERTINENT QUESTIONS

6. How can we champion the delivery of 10 million affordable owner-occupier homes over the next 20 years?

7. How can we increase the number of car owners by at least 100,000 every year?

8. Which of these will be industry initiatives and which will be driven by companies individually?

6 PERTINENT QUESTIONS

TWO KEY STRATEGIC QUESTION FOR THE INSURANCE INDUSTRY

• Are we going to be beneficiaries of economic growth growth?

• Or

• Are we going to be both catalysts/engineers of inclusive growth and beneficiaries of same.

• To what extent is quantum growth dependent on collaborative industry initiatives?

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ISSUES TO BE ADDRESSED IF THE SECTOR WILL BE CATALYTIC

1. Strong vision at the industry level2. Strategic industry leadership3. Recapitalisation4. Human Capacity Building5. More effective regulatory enforcement

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