According to the National Insurance Commission (NAICOM) first-quarter report, Nigerian insurers transferred a significant 74.8% of their income generated from oil and gas businesses to foreign insurers in breach of the regulatory maximum limit of 30%. The report reveals that local insurers generated N65.4 billion in premium income from the oil and gas sector in Q1 2023, but transferred N48.9 billion (equivalent to 74.8%) to foreign counterparts.
Comparing these figures to Q1 2022, the situation has worsened. In the previous year, Nigerian insurers transferred N25.16 billion (50.1%) to foreign insurers out of the N50.2 billion premium income generated from oil and gas. This shift is attributed to the increasing dollarization of the oil and gas business, which has had a significant impact on local retention.
The local content law in Nigeria mandates that 70% of all insurance risks associated with oil and gas businesses must be insured domestically with registered insurance companies, while 30% can be ceded abroad. However, the continuous depreciation of the Nigerian naira and the growing challenges in accessing foreign exchange have made compliance with this requirement difficult.
Olasupo Sogelola, the Managing Director/CEO of International Energy Insurance, explained that the depreciation of the naira and limited access to foreign exchange have reduced retention while increasing the value of the risk. He highlighted that insurance companies in Nigeria often face capacity limitations due to their relatively low capital base, hindering their ability to fully engage in the oil and gas sector.
The dollarization of the oil and gas business also impacts claims payments, as insurers are forced to settle claims at higher rates due to exchange rate fluctuations. Adebisi Ikuomola, the Deputy Managing Director, Technical, of Anchor Insurance, added that participation in the oil and gas sector is decreasing and can only improve if the exchange rate for the dollar decreases or insurers’ capital bases increase.
