Significant high-value insurance risks worth 75 per cent
and 60 per cent have continued to flow into the international
markets, notwithstanding the legislation on the Nigerian Oil and Gas
Industry Content Development Act, A. M. Best, has said.
The international rating agency, A. M. Best in a report made available to journalist, estimates that insurers are retaining only between 25 per cent and 40 per cent of the country’s oil and gas related business, compared to the less than five per cent written prior to the 2010 legislation.
The report showed that the insurers lacks the adequate levels of capital to support their exposures to oil and gas business.
The rating agency said this is enhanced by the absence of expertise
and technical know-how to support the underwriting of oil and gas
business.
It stated that the Act has yet to successfully deliver on its
objective of effectively domesticating the majority of oil and gas
business in Nigeria.
According to the report, the Act, established in 2010, mandated that insurance companies
must participate in 70 per cent of the local energy business arising
from the sector before these risks could be transferred internationally.
The report read: “Nigerian insurers lack the adequate levels of
capital to support their exposures to these high-value risks. This
uncertainty is enhanced by the absence of expertise and technical
know-how to support the underwriting of oil and gas business.
“In a further attempt to increase the retention of oil and gas profits in the country, the National Insurance Commission (NAICOM)
supported the Nigerian Insurance Association (NIA) establishment in
January, 2015 of a new initiative, the Energy and Allied Risks Insurance
Pool of Nigeria.
“Managed by African Reinsurance Corporation, the pool consists of 14
members and has capacity to underwrite USD 4 million of oil and energy
risks. The pool is expected to assist in the sharing of knowledge and
expertise of insurers underwriting oil and energy business, although in
reality the capacity of the pool remainsvery small in comparison to the
scale of many of the large oil and energy risks underwritten.”
The agency noted that while the Act has enjoyed marginal success, NAICOM has continued to be proactive in its attempts to advance the insurance market.
Over the years, the regulator has implemented numerous reforms to
improve the perception of the sector and expand the contribution of the
industry to the country’s economic output, to varying degrees of
success, it added.
Source: Insurance Advice
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