Stakeholders in the insurance industry have raised concern over the negative sentiments attached to international ratings against Nigeria based insurers despite their capacity, which sometimes are bigger than some foreign better rated companies.
They also queried on why companies in Nigeria cannot be rated above the Country’s sovereign rating, despite their strong balance sheet and ability to meet claims obligation.
BusinessDay checks show that no Nigerian Company has been rated above the country’s sovereign rating; situation players say it’s undermining their position in the global market.
Standard & Poor’s credit rating for Nigeria stands at B with stable outlook. Moody’s credit rating for Nigeria was last set at B1 with stable outlook, while Fitch’s credit rating for Nigeria was last reported at B+ with negative outlook.
The stakeholders who gathered at a breakfast meeting organized by Leadway Assurance Company Limited in partnership with S&P Global Ratings held in Lagos said disadvantaged rating of Nigerian companies against their foreign counterparts is denying local insurers some business opportunities in the international market.
According to them, it is also painting Nigerian companies as second or third-tier insurance companies against their foreign counterparts that are less strong but with better ratings.
Besides that, these ratings influence investor appetite, and so affect foreign direct investments that should have found their way into the Nigerian market, and also affects pricing of Nigerian companies by foreign investors.
Oye Hassan-Odukale, managing director, Leadway Assurance Company Limited said Nigerian insurance companies are most times underrated by their foreign business partners and investors, whose sentiments are guided by international ratings.
“We have strong companies here in Nigeria with quality balance sheet and large asset size, but have been placed lower than weaker companies overseas that have better ratings”.
Oye stated that the essence of the Breakfast meeting was to share knowledge with S&P, key customers of insurance companies and other stakeholders who advice on Foreign Direct Investments (FDIs), to appreciate challenges of the local insurance companies and impact of impact of international ratings.
“I see that you cannot be rated more than your country’s sovereign rating, that is a challenge, Oye further argues.
But Trevor Barsdorf of S&P Global Rating agency said it is not all the time that companies are rated below their sovereign rating, stating they could be rated higher when the operate globally or have large chunk of their assets in other countries that have strong economies.
“If you have invested all your assets in one country, you are likely to be rated based on the political and business environment impacts of that county, Trevor said.
“S&P Global’s view is that not all ratings need to be constrained at the level of the sovereign rating”.
According to him, this is part of what I think has influenced most of the Nigerian companies because they concentrate their assets within the local economy”.
He however said that well managed companies, with strong balance sheet, quality risk management structure and good governance practice could be rated above the country’s sovereign rating.
Trevor joined by Neil Gosrani painted a picture of a Nigerian
insurance industry that is currently small size, low capitalized, poorly regulated, poor product design and an economy of low disposable income, still driven by compulsory lines and local content policy.
According to them, the future is bright if there is improved regulation, expertise, consolidation, consumer protection, underwriting capacity, stating that the current demography would be in favour of insurance in the future.
While they think that Nigeria should follow Europe in Solvency II Model to become competitive, George Onekhena, deputy commissioner for Insurance, Finance and Admin at the National Insurance Commission (NAICOM) stated that Nigeria have not considered Solvency II for now, but are working on achieving key pillars of the model.
Onekhena noted that the focus of the Commission’s regulation, aligns with solvency II and they include customer protection, by ensuring that companies pay claims; protection of investor capital, by ensuring that companies pay dividend because that will determine access to capital, It also involves risk management, corporate governance among others.
He however observed that the challenge, which the Commission has at the moment, is the lack of data, which is necessary for decision making.