NAICOM, operators should grow long-term fund – Government intervention in the review and strengthening of extant legislations on insurance, and better implementation and enforcement of Insurance Act 2003 and the National Insurance Commission (NAICM) Act 1997 by the regulator, are possible actions to ensure optimal operation of the Insurance Industry, the Managing Director, Infrastructure Bank Plc, Adekunle Abdulrazaq Oyinloye, has said.
Oyinloye, who spoke as a special guest at the 2018 Insurance Brokers Conference & Exhibitions on the theme: “Insurance Industry: Survive, Thrive,” held in Lagos, called on NAICOM to enforce compulsory insurances to boost the industry’s long term funds, saying the industry has made only a marginal investment in the infrastructure sector in recent years.
He said there is enormous opportunity for the industry in infrastructure development and finance in Nigeria, pointing out that government has a role to play in ensuring that the industry plays its role in economic development by making relevant laws that will help make certain insurance policies compulsory and harsh sanctions for non-compliance of same.
Citing Section 64 of the Insurance Act that makes compulsory insurance of building under construction which is more than two floors, he said the general implementation of the Insurance Act has left more to be desired.
Oyinloye said with the long-term nature of life insurance, retirement savings and pension annuities, the Industry is well positioned to participate in infrastructure financing of Private-Public Partnership (PPP) projects, given the need to match long-term liabilities with long-term assets.
He urged the National Insurance Commission (NAICOM) and operators to play their role in contributing private investment and sector expertise in long-term PPP infrastructure project, adding that there are unique opportunities for the industry to play a pivotal role in contributing private investment and sector expertise in long-term PPP infrastructure projects.
He said: “In today’s low-yield environment, insurers are under increasing pressure to source additional investment return. Infrastructure investments may present an opportunity for insurers to achieve the required yields to cover future liabilities and provide competitively priced products.
“Infrastructure investments are an interesting option for an insurer’s portfolio, as they provide potentially lucrative risk-adjusted return on equity; Long-term risk exposure, which may provide a good match for long-term liabilities; illiquidity and sector-diversity, which could increase portfolio diversification and an opportunity to lend money to sectors in need of funding, leading to social and potentially reputational benefits.
Oyinloye said the Industry has made only a marginal investment in the infrastructure sector in recent years. However, there is increasing interest as insurers find that the benefits of infrastructure assets outweigh the apparent costs relative to the low yields available on more traditional investments. Therefore, insurers should understand the requirements of the infrastructure market to suitably influence the availability and attractiveness of investments.
In this regard, the Development Finance Institution, like the Infrastructure Bank PLC is the Industry’s partner, as it sits on identified selection of deals and pipeline opportunities which may be well suited to an insurance investor. We explore the operational complexity of such an investment, and analyze the materiality of such risks, including the possible mitigation options available to insurers.
He stressed that insurance sector as a component of an efficient financial ecosystem.
Giving the foregoing, he posited that the situation presents a compelling need for designing and implementing bespoke financing instruments suited to the long-term financing needs of infrastructure projects.
He said for such instruments to be bankable, insurers would be required to develop matching products that align with the tenor, as well as the risk and returns profile of infrastructure investments.
“This reality is particularly crucial if the nation is to harness the capacity of private capital to bridge the existing funding gaps in the infrastructure sectors.
Undeniably, the role of insurance sector in back-stopping, de-risking and underwriting infrastructure financing instruments can thus be described as a new frontier that would bridge the misalignment between typical corporate/individual lending facilities and infrastructure project financing facilities.
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