Dr. Femi Oyetunji is the Group Managing Director/Chief Executive Officer, Continental Reinsurance Plc. He speaks on the challenges of the insurance sector in Nigeria and the clamour for mergers to produce strong entities. NGOZI AMUCHE attended the high-level question and answer session. Excerpts.
What are the prospects and challenges of the insurance sector in Nigeria?
The insurance sector in Nigeria is faced with the same issues faced in most other countries. We need well and highly capitalised companies. Personally, this is the same sentiment I expressed in 2005 and 2006. We must merge and build strong institutions, else the insurance companies outside Nigeria will be picking up our businesses. Generally, it is a tough environment for us in Nigeria in the insurance and reinsurance business. As you know, the economic environment has been a bit down in the last couple of years, and when there is economic downturn, insurance is the first to suffer. Therefore, it is tough for our environment.
How will insurance penetration be spread in Nigeria?
One of the things we have talked about for many years is insurance penetration, and people think insurance penetration can happen just by insurance people doing their business a lot better; it is not true. For many decades, many of the reasons why insurance penetration has not occurred are: first, you don’t even have payment platforms for people to pay. For you to get insurance penetration, what you are saying is that you want to take insurance penetration to the grassroots. The long-standing challenges of low awareness, poor enforcement, customer apathy, and poverty continue to impede insurance penetration and growth in Nigeria. Insurance operators, alongside related associations, such as Nigerian Insurance Association, the Nigerian Council of Registered Insurance Brokers need to collaborate more and intensify efforts to raise awareness of the innumerable economic benefits and social impact of insurance on personal, business and public life.
Furthermore, enforcement (especially of compulsory insurances i.e. Market Development and Restructuring Initiative by government agencies need to be improved. Insurance operators need to collaborate better with other stakeholders (within and outside the industry) to develop flexible pocket-friendly insurance products to cater for the less privileged and under-served segments of the market, who have little or no disposable income.
We need well and highly capitalised companies. Personally, this is the same sentiment I expressed in 2005 and 2006. We must merge and build strong institutions, else the insurance companies outside Nigeria will be picking up our businesses. Generally, it is a tough environment for us in Nigeria in the insurance and reinsurance business
What other issue do you think will affect the future of the industry?
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Is it true that your company will be delisted from the NSE?
Let me emphasise that from the ongoing Scheme of Arrangement, we have no interest in delisting or not delisting. What we have done, as it also works for international ratings agencies and consultants, is to look for an environment with higher ratings that will assist us to get to where we are going. After a careful selection and in terms of simplicity, we choose to set up a holding company in Mauritius.
We have been on this process for over a year. We have to go to NAICOM and the NSE to explain our intentions. However, before we can transfer the shares from here to there, we have to do our valuations of the company. As a company, we did our internal valuation, our auditors, PWC, did their valuation; we brought in Ernst and Young as the Accountants, after which we engaged an independent company, Coronation Merchant Bank, to also do their own valuation. And that made us to come out stronger.
Tell us about the recapitalisation process of Continental Reinsurance Plc?
We started some 30 years ago as a local Nigerian company. In 2006, we were able to recapitalise by injecting capital from a private equity called Emerging Capital Partners from Washington, USA. Thankfully, 2006/2007 saw the transformation of Continental Re in terms of governance and process, thanks to the ECP. I joined the company in 2011 and what I saw then was that we were a multinational company although we were seeing ourselves as a Nigerian local company.
However, we took a decision that there was a need to close the gap in the capital market across the continent and we felt strongly that Continental Re should fill that gap to create a strategy because we had a vision to be a premier insurance company. At the time I joined in 2011, we had a branch office in Duala, Cameroun, which we started in 2003, and a branch office in Nairobi, Kenya, which was started in 2008. New things evolved in terms of regulations, practices while you also needed to have good capital.
For us, looking at the way regulations were going, we needed to be local in different
regions.
In Kenya, we moved from being a branch to creating a subsidiary in 2013. In 2014, we created a subsidiary in Botswana. We intended to be local in those regions and be subjected to the local regulations and that entitled us to some benefits in terms of access to do business, though, certainly, we are limited by capital and worth. Therefore, it is most important that for us to achieve a rating, which will give us the opportunity to transact the right kind of business and give us some exposure to better our quality risk, we should embark on capital raising and restructuring.
What are your strategic plans going forward?
We have a strategy plan until 2020, which remains unchanged. What this arrangement gives us is the ability to attract more capital into this company. We cannot carve out the assets of the company because we need to build more assets and capacity for us to be relevant going forward. Things are changing rapidly. I have heard some people say that we do not need the rating. I always implore people to check what happened to Kenya Re. Kenya Re has been downgraded and we know what businesses they are doing now. Tunis Re was downgraded, but now, the rating has been removed entirely. For Tunis Re, the future is left to be imagined. Rating is the cornerstone of our business. Without having the relevant rating, we will not be relevant in the future. For the management team and the board, it is important for us to do things that will get us that
rating.
Such effort means bringing and retaining more capital, writing profitable business to be able to retain more capital. So there is no way capital or asset is going out of this company. For the stock market, it depends on what the rules of the SEC dictates in terms of number of shares. Nigeria is 40 per cent of our business across Africa; it is the most significant, it is the second largest insurance market in Africa, and our focus is strictly
Africa.
