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Adeduro: Borrowing for projects is plus for insurance sector

 

 

Mr. Mayowa Adeduro is the Managing Director, Law Union & Rock Insurance Plc. In this interview, he speaks on issues impacting the insurance sector, recapitalisation and ensuring that borrowed funds are deployed into infrastructure. Sunday Ojeme reports

 

 

 

 

What was the impact of the coronavirus pandemic on the industry in terms of claims recorded?

 

So far if you look at it by the expectation of the global community that we would be carrying dead bodies on the street in Nigeria by now. So, in terms of pandemic itself, I will say that by a stroke of benevolence of the Almighty God we’ve been able to survive it. In terms of its impact to claims it’s been moderate.

 

It’s not been that escalated like developed countries, USA, Europe, China and so on. So far we have less than one thousand three hundred deaths and how many of them were insured, we’ve not been able to determine that. Of course, some companies during the lockdown suffered loss of profit and their revenue but that was not covered under insurance.

 

Because insurance only cover loss of profit when there is a material damage like fire incidence occurred in a company or like flood event or any major disaster that cause a factory or company to shut down then you pair loss of profit along with it.

 

Recapitalization is the most contentious issue in the market right now and the first phase is to be completed by this December, what do you think will be the face of the industry come Q1’21?

 

I was a bit scared before. From my personal view I never expected that more than twenty companies will survive when the recapitalization was announced based on the position of the industry as at then

 

But because we have had some soft landing from the regulator in terms of postponement of the deadlines so that has given succor to the industry to be able to muster support from the investing public.

 

So far, so good I’m expecting more than 20 insurance companies to survive it at the end of the day. And why am I saying this? The timing has paid off so that companies can be able to mobilise fund both locally and abroad.

 

And again the fact that the money market has gone down significantly , I mean that now if you put your money in some of the leading banks no matter how much you have there you are not going to get more than two percent interest on your principal.

 

With that people are interested in investing their money in insurance industry because, at least, they will be sure of returns more than what they would have where the put such money in banks.

 

So I expect more insurance companies to survive. And from the look of things when you go through the balance sheets of some companies now, you would realize that it cannot be less than 25 insurance companies that will survive out of the 50 insurance firms and new companies are coming on board.

 

Let’s also look at the impact of #EndSARS protest on insurance because it’s like that has been more damaging than the covid-19 pandemic…what’s your take on this?

 

The EnSARS protest and the violence that followed through was quite unfortunate event. Of course, when this thing was happening people like us that know about risk management envisaged that it might lead to that position. But talking about the quantum of loss it’s colossal.

 

We have not seen that happened before apart from the Nigerian civil war era and therefore, we’ve not been able to quantify all but we are very certain that as an industry we will rise to the occasion.

 

We’ve met with our regulator, we’ve met with our umbrella association, the Nigerian Insurers Association (NIA) and we have agreed that this is a test of time for insurance industry; this is a litmus test about the capacity, about the resilience, about the determination of the insurance industry to support the insuring public. So, we are going to support the insuring public.

 

I can assure the insuring public that the industry will not let them down. And this is a call to every potential insuring public to take note that event like this will always occur inasmuch as we have activities of human being in this part of the world.

 

From the Law Union & Rock perspective, have you    recorded any filed claims emanating from the protest?

 

Yes! We are part of the banks that were looted and vandalized; some of them we are leading and we are already attending to them.

 

Can you put a figure to the anticipated claims?

 

The claim figure we are estimating from our own side can’t be less than N2billion that is from Law Union alone.

 

But of course, for every claim you must justify it. There must be loss adjuster’s report, every due diligence must be taken, you must be sure that the insured had paid premium before you can entertain the claim. But our rough estimate is in excess of N2billion.

 

We are living in an economy that survives by excess borrowing by the government, what is the impact of this huge debt on insurance and of course to the larger economy?

 

We should look at it that borrowing itself is not a thing that is bad but borrowing for consumption is bad. If you borrow for developmental projects as the government approached the Chinese Government for the financing of railways it’s a good idea.

 

Borrowing to finance roads is a good idea; borrowing to build infrastructures is a good idea because overtime these things will yield returns. But the fear we have is the capacity of the government to be able to service these loans if the Ts and Is are not doted across as it were.

 

So, one believes that as much as government borrows money at      no interest rate and for financing of projects the capacity of the government to be able to pay back the loans should not be cumbersome in the process. In terms of its implication on the insurance sector, it’s generally an implication to the general public not just the insurance sector.

 

Because the tendency is that when you borrow you get to pay back and therefore, if your capacity to pay back is not there it’s going to impact on the populace negatively. But if the capacity to turn those assets into income generation is not there, it’s going to impact your populace.

 

But of course, for the fact that we are going to insure all those projects are a plus for us as an insurance institution.

 

From the budget figure of N13.8trillion, over N3trillion is earmarked for debt servicing, what is your take on this?

 

It is expected that when you use substantial part of your revenue to service debt you have less amount available for recurrent expenditures and for capital expenditures. That is where we come again when I mentioned the fact that your debt obligation must be for revenue generation, for things that will generate revenue.

 

If you don’t do that it means you will be under pressure to meet your obligation to the populace who needs other things to be done. So, I think the government should look into that aspect to ensure that these debts are basically driven by projects that will generate further revenue for the government and infrastructural development for the entire country. It’s not bad to borrow money but the money you borrow must go into projects that will finance the borrowing.

 

How would you assess the insurance industry in the past one year?

 

You know people always find an opportunity to criticize insurance industry but for those of us that have chosen that as a profession, went to university to study insurance and know the nitty gritty of insurance, do we say that the industry is resilient?

 

That is the word I will use. It’s been a resilient industry and this is not the best time to appraise any company or an industry because of the global pandemic. But for the industry to have withstand it and still continue, you have not heard about liquidation of insurance company or go bankruptcy it’s resilient they have done fairly well.

 

Two years after on this saddle as the chief executive officer of the Law Union& Rock Insurance Plc, can you tell us what you have been able to achieve?

 

Yeah!

 

When I joined this company first thing I did was to appraise the performance of the company about five years down the line. And I realised that, in terms of management cost, the company had done very well and also in terms of profitability the company had done very well.

 

But the topline has not been growing as expected looking at some of the competitors. What we had done was to really appraise why the company was not growing as expected and we realised that there was a need for the company to be friendlier with brokers and the insuring public and that we have incorporated.

 

So for the first year the company grew by six percent and we expect that the company will equally grow by about, despite the covid-19, we are expecting a growth rate of close to 10percent at the end of this year.

 

And of course, we have been able to hold down the issue of management cost in the company. We have achieved that. And then the greatest of our achievement is to see that this company is among the most recapitalized company.

 

We’ve been able to bring in investors to the company, Verod Capital who invested in the company and they    are ready to take the investment in the company even beyond the threshold of the National Insurance Commission. By December, our capital base will be in excess of N11billion. And we are going to acquire another insurance company, which I can assure you.

 

Which of the companies are you acquiring?

 

I cannot tell you that because there is a nondisclosure agreement.

 

Law Union & Rock used to have a niche in insurance of engineering, has anything changed?

 

No! It hasn’t changed. Those days… unfortunately a lot of things have been watered down. In those days when you talk of engineering it was the Law Union & Rock, probably when you talk of motor insurance you mention NEM Insurance and you talk of life, it was AIICO Insurance. Law Union & Rock Insurance is still well recognized for that even uptill now. And why am I saying that?

 

We are in the major engineering projects that are going on now, some we are leading, and some we are part. For example, we are the leading underwriter in the Niger Delta Power Holding Company project and we have other engineering projects in oil and gas sector that Law Union & Rock has always been part. We have a sizeable engineering portfolio which is in excess of N500million in terms of premium.

 

How was Law Union & Rock Q3 performance in terms of naira and kobo?

 

We’ve been lucky because we were expecting that we would lose almost 25per cent of our revenue when the coronavirus set in and companies have to shut down for more than a month or there about. But so far so good we realized that the impact has been marginal.

 

The major impact we had was the collapse of the money market where one was having interest rate of 10-12per cent on deposit suddenly one is having one percent and where one is having 2percent,he is lucky. So that has impacted our profitability significantly.

 

But in terms of  our topline we are running at a speed of 2019 when we did not have coronavirus and we are hoping that even before the end of the year we would have grown our revenue beyond the 2019 account that we had.

 

So in terms of profitability we are in excess of N300million as of now and we are expecting that it would get close to N500million by the end of the year.

 

What has your investor, Verod Capital, brought to the table apart from the finance aspect of their investment?

 

Very good question thank you for that. Verod Capital is an Anglophone investment outlet, an equity investor who specializes in investing in ongoing projects or companies within West Africa. Verod Capital has been in operations in Nigeria for eight years.

 

They have investment in the Central Securities Clearing System (CSCS), they have investment in Emzor, they’ve bought UBA Metropolitan Life now turn to Tangerine Life.

 

They’ve bought into ARMLife. UBA Metropolitan and ARMLife will come together to become Tangerine Life by merger. So, they have invested in Law Union & Rock and they have brought capacity to us in terms of financial management. They’ve equally brought capacity to us in terms of business development so we are very happy that they’ve added value to us in terms of business development activities.

 

And they brought in a world class performance-driven system whereby you look at things holistically including, for instance, power supply. You don’t know how much money you are wasting by using some set of lighting system. So, they’ve been able to bring to our knowledge that you can save a lot of money by reducing power consumption, by reducing paper wastage.

 

So, they brought in some new management system into Law Union &Rock. And they are coming again with digital platform using technology to drive the retail sector of the insurance industry.

 

So, we are very happy, we are very elated by their investment in Law Union & Rock. And through their investment in the company we are already talking with another company to acquire in such a way that before the end of 2021 Law Union will be in top five in terms of asset base, in terms of balance sheet size of the insurance industry in Nigeria.

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