COVID-19: Actuarial expert expresses concern over insurers’ solvency


The underwriters are currently recapitaliaing to increase their paid up capital


ollowing the impact of COVID-19 on global economy, the Chairman /CEO, Achor Actuarial Services Limited, Dr Pius Apere, has expressed concern over the solvency rate of Nigeria’s underwriting firms.



Apere, who expressed the feelings  in a paper entitled ‘Recapitalization of Nigerian Insurance Industry in Covid-19 Pandemic Era’ obtained by New Telegraph, however, charged the National Insurance Commission (NAICOM) to conduct a solvency test on the insurance companies to ascertain their level of soundness.

According to him, the impact of the pandemic on businesses has made it imperative for the test as companies’ operations have been seriously hampered while claims and credit insurance have taken a toll on them.



He noted that the most obvious potential impacts of the pandemic on insurers were the pressure on sales from reduced business activity, the upsurge in claims arising from life, health, travel and business interruption insurance etc.



According to him, the global economic slowdown due to the pandemic had driven interest rates even lower, prompts market volatility and increasing credit risk exposures leading to more credit insurance claims.



He said: “The above impacts are likely to affect the solvency position of many insurers which would require regulatory scrutiny with appropriate solvency tests to ensure insurers can withstand the immediate and knock-on impacts of the Covid-19. This no doubt had already affected the implementation of the recapitalization guidelines; hence the recent extension of the recapitalization deadline to September 30, 2021, which is a welcomed development. The extension would allow insurers space to review their strategic initiatives/plans to meet the recapitalization deadline.”



Speaking further on general operations, he pointed out that the impact of business interruption, the economy and human lives had put pressure on insurance business sales resulting from reduced business activity due to less use of face-to-face channels and social/physical distancing.



He contended that insurance industry was likely to experience reduced sales and attendant losses in the Covid-19 period even after the recapitalization exercise.



“The foregoing would affect the insurers’ profitability and solvency over the short term, in which case the industry may appear to be over capitalized if the benefits of the recapitalization could not be achieved. On the other hand, the impact of covid-19 may also create deeper awareness of the importance of insurance cover. Therefore, there is optimism that more persons and institutions are likely to embrace insurance in post covid-19 era (i.e. over the long term), leading to an increase in sales of insurance products and profitability in the recapitaliaation era,” he said.



He noted that the pandemic has induced a considerable use of direct marketing through internet, telephone, social media, such as Twitter and Facebook both for marketing and selling of insurance products, and that information about customers could be obtained from online sources.



According to him, insurers may need actuarial services to cope with the operational challenge of quickly adjusting pricing models in a fast-changing business environment, adding that “this underscores the importance of actuarial units for insurers in the recapitalization era.”



He alao frowned at the menace of unethical practices, saying the tide requires the collective responsibility of all stakeholders in the insurance industry to combat the menace of unethical including rate cutting practice which, he said, had hampered the insurance penetration, profitability and solvency of insurers over the years.



He stressed that such practice, if not in check, might limit growth of the industry even after the recapitalization positing that a pragmatic self-regulatory approach could be used to checkmate its existence such as premium quotation comparison and monitoring approach.



According to him, “this approach would mandatorily require insurers to submit to Nigerian Insurers Association (NIA) the rates they intend to charge for a particular class of business at the next renewal cycle which will be compared with the actual premium quoted in practice within the monitoring period.  Defaulting insurers will face the laid down disciplinary procedures with the regulator being carried along.”




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