VANGUARD
Against the backdrop of the persistent depreciation of the naira, insurance companies are increasingly transferring their oil and gas businesses abroad through offshore reinsurance policies.
Local insurance firms are believed to be hedging against potential losses or depreciation of their premium income.
However, industry experts have noted that the foreign exchange (forex) crisis is not only eroding the capital base of local insurers but also facilitating significant capital flight.
According to a Financial Vanguard analysis of the insurance sector, premium income ceded offshore in the first quarter of 2024 (Q1’24) surged by 94.5 percent year-on-year (YoY) to N95.11 billion, up from N48.9 billion in Q1’23.
This trend persists despite the local content law, which mandates that 70 percent of all insurance risks related to oil and gas businesses must be insured in Nigeria with registered Nigerian insurance companies.
A further breakdown of the figures reveals that oil and gas premium income stood at N132.01 billion in Q1’24, with insurers ceding N95.11 billion offshore and retaining only N36.9 billion, indicating a retention rate of just 28.1 percent.
The oil and gas businesses covered include prospecting, exploration, drilling, construction, shipping, distribution, marketing, and transportation.
Experts believe that the trend of insurers ceding more businesses offshore is likely to continue as long as the forex crisis persists.
Additionally, industry data shows that for the full year ending 2023, oil and gas insurance premium was N167.8 billion, with N113.1 billion ceded offshore and only N54.7 billion retained, indicating a retention rate of 25.2 percent.
