New guidelines issued by the regulator are helping to shape a sector that has much potential, especially as a growing middle class begins to flex its savings muscles.

To describe the Nigerian insurance sector as a work in progress is not an impolite expression. After the recent rebasing of national statistics by the National Bureau of Statistics (NBS), the share of the sector in GDP at the new 2010 base for 2013 was just 0.57%, well behind rivals such as South Africa and Morocco, despite the fact that Nigeria is now the African continent's largest economy. According to Swiss Re estimates, total premiums generated in 2013 amounted to some $1.86 billion for the year, placing Nigeria as the world's 58th largest insurance market. Considering the economy is now approaching G20 status, as the 26th largest in GDP terms, the potential of the market is clear, especially as both incomes and working-age population numbers are on the rise. Growth in the insurance sector was estimated at 8% over FY2013 by the NBS, well above the 5.5% GDP growth rate recorded for the broader economy.

Swiss Re estimates that life premium volumes ran out to $457 million in 2013, up some 13.40% in YoY terms, while non-life premiums came in at $1.406 billion, up by 13.48%. The divergence in growth rates between those of the NBS and Swiss Re is easily explained—the actual size of the insurance industry and its potential within the Nigerian economy is still one of supposition, with many of the so-called most recent statistics sourced from 2011, and those still hinged on the old 1990 base year.

Despite the miasma of statistics, some of the basics are quite clear. The main market regulator, the National Insurance Commission (Naicom) has steadily, but surely, sought to encourage consolidation in the industry, bring in foreign investment and know-how, and update regulations to reflect the evolving nature of the global insurance and reinsurance market. Consolidation, whether in terms of increasing minimum capital requirements or eliminating those that the Naicom describes as "fake insurance institutions," has seen the number of insurance providers fall from 140 companies in 1994 to 58 in 2013. A Fitch report from March 2014 surmised that foreign investors looking for opportunities in the local market are more interested in M&A deals rather than setting up new standalones, despite the regulator permitting 100% foreign ownership of insurance companies operating in Nigeria. A reflection of the increasing interest in Nigeria's burgeoning insurance was seen over 2013 through two key buy outs. FBN Life Assurance, a joint venture between South Africa's Sanlam and the First Bank of Nigeria, acquired a controlling stake of Oasis Insurance, while Oceanic Insurance Company and Oceanic Life Insurance were taken over by Old Mutual Plc.

Regulations are also on the march. Despite the de jure existence of compulsory lines, their observance is still much in need of enforcement. Some six lines, with one dating back to 1987, are supposed to have compulsory status, though the large size of the grey economy in Nigeria has made such stipulations a moot point. According to Naicom, group life insurance, employer's liability, buildings under construction, occupiers' liability, third-party auto, and healthcare professional indemnity schemes all fall under the compulsory category, though it would appear from the statistics that only the "big end of town" is required to respect these regulations.

To address these breaches of observance, Naicom released two critical guideline papers over 2013. The regulator looked toward the side of the economic potential of the sector, issuing guidelines on the potential for takaful, or sharia-compliant, institutions in the sector, as well as those for one of the more popular products to address low-income individuals, microinsurance. While the minimum capital requirements stipulated for takaful providers remain somewhat undefined, those for microinsurers have been firmly set. For those involved in the life sector, a minimum capital requirement of NGN150 million, or some $937,500 at a weighted exchange average rate, was set, those on the non-life side had a slightly higher NGN200 million ($1.25 million) stipulated.

Clearly, the bar for entry is low, though the potential of the 174 million plus population of the country remains high, especially on the life and pensions side. In terms of the largest insurance providers, Fitch's March 2014 report listed them as follows: Leadway, AIICO, Mansard, Custodian & Allied, and Niger. Aside from Niger Insurance and AIICO, most of the companies sourced their premiums from the general insurance side. However, life will likely walk its own path going forward.