Insurers fail to secure reinsurance backing over FX shortage

Following shortage of foreign exchange (FX) needed to transact international businesses, including reinsurance, insurance firms in Nigeria have been forced to retain the risks emanating from the local market higher than their capacity, BusinessDay learnt last night.

The implication is that local insurance companies are currently carrying risks above their capacity for being unable to pay for reinsurance due to lack of FX, analysts have said.

“Insurance industry is sitting on a gun powder waiting to explode, as inflation adjusted claims are huge and coming in their numbers, and this is capable of weighing down the industry,” a CEO said yesterday.

Funmi Babington-Ashaye, managing director/CEO, Risk Analysts Insurance Brokers, who confirmed the impact of shortage of FX policy on the industry, said insurance companies could not get FX to repatriate for reinsurance and so have resulted in keeping some of the risks locally.

A lot of claims are coming and insurance companies are feeling the heat, particularly on inflation adjusted claims, Babington-Ashaye said.

This is more pressing on large risks, especially in oil and gas, and aviation businesses, which ordinarily are not suppose to be retained locally above certain limit, she said.

Babington-Ashaye however noted that with the new FX flexibility window, economic activities were expected to pick up and there would be increased activity in the domestic economy.

“This policy is expected to attract foreign investors into the country, and with these capital inflows, insurance sector will pick up and there will enough FX for reinsurance, she noted.

Richard Borokini, director-general, Chartered Insurance Institute of Nigeria (CIIN), said a lot of industries had been shut in the past as a result of shortage of FX, because they could not purchase raw materials from the offshore market, but observed that “If the FX regime is well managed, these industry would be revived.”

You know that success of the economy will translate to increase spending for insurance. So, we are optimistic that the new FX policy if well managed would impact positively on the economy and insurance will benefit, Borokini said.

Lady Isioma Chukwuma, president, CIIN, during a press conference on Wednesday, said the harsh economic environment experienced in the past month impacted somehow negatively on the activities of the institute.

“Our sources of income are membership subscription and from sponsorship, and with the poor business environment we have been largely affected,” she said.

Despite preliminary activities to secure the services of developers for a Build Operate and Transfer (BOT) arrangement on the CIIN’s Victoria Island Building, the present economic situation has made getting a developer a bit difficult, she said.

“We have not allowed the poor economic situation to deter us. This is one project that will continue to have our attention. We shall continue to explore all options that will lead to its successful completion. It is a big task. However, we shall make it top of our priorities,”  she said.