17 April 2014, Abuja – One of the biggest customers of the insurance industry, the Nigerian National Petroleum Corporation, has completed arrangement to renew its insurance contract for this financial year for a premium of $79.4m (N12.9bn), investigations have revealed.
According to information at the disposal of our correspondent on Wednesday, the amount is the biggest chunk of the NNPC’s budget for the insurance of its refineries, drilling operations as well as the joint venture interests.
It was gathered that Mutual Benefits Assurance Plc had won the contract as the lead underwriter of the NNPC’s risks.
The company is expected to put in place an arrangement for other insurance firms to join it to provide cover for the corporation.
The oil and gas business earns the insurance sector huge premium and is profitable when there are no losses overtime. On the other hand, a major loss could force the underwriters to cough up huge claims.
As part of local content initiative of the Federal Government, the National Insurance Commission officially introduced the guideline for the operation of oil and gas insurance business in the country in 2010.
The guideline, which was issued pursuant to the provisions of the Insurance Act, 2003 and the National Insurance Commission Act, 1997, aims to increase the take of local underwriters in the business and curb capital flight from the country.
The guideline states, “No person or organisation shall transact an insurance or reinsurance business with a foreign insurer or reinsurer in respect of any life, asset, interest or other properties in Nigeria, classified as domestic insurance, unless with a company registered under the Insurance Act, 2003.”
It also said that the insurance broker must possess a current professional indemnity policy with a minimum line of liability of N100m.
It added that no insurance risk in the Nigerian oil and gas industry would be placed overseas without the written approval of the commission, which would ensure that local capacity had been fully exhausted.
The guideline defines local capacity as the aggregate capacity of all Nigerian registered insurers and reinsurers, which shall be fully exhausted prior to any application for approval to reinsure any oil and gas risks in the country overseas.
All registered indigenous insurers are eligible to participate in any Nigerian oil and gas insurance business, subject to the limitation as stipulated in their operational licences.
According to the guideline, all insurance brokers holding current licences of NAICOM are eligible to provide brokerage services in oil and gas business.
In a recent interview with our correspondent, the Commissioner for Insurance, Mr. Fola Daniel, said the sector had been building both financial and human capacities for the oil and gas business.
“I can say to you that three years ago, the entire retention capacity in Nigeria was less than six per cent; now, we are entering into over 30 per cent, we are making very good progress,” he said.
The commissioner explained that the local underwriters had to take what they could insure before they reinsured the rest abroad.
“If we take more than we can cough out, it will sink the market; so, we really need to be sensible in the assumption of 70 per cent as prescribed by the Nigerian Content Act. But we are making big strides; we are moving forward,” Daniel said.
– The Punch