Insurers laud multinational appointment of local underwriters for energy risks
By Joshua Nse
CHIEFTAINS of the nation's insurance industry may have been elated by the decision of the Nigerian National Petroleum Corporation (NNPC) and oil majors to appoint domestic insurance companies to participate in the juicy oil and gas underwriting in the country, hitherto the exclusive preserve of the captive insurance companies of the multinational oil companies.
The change of heart, The Guardian gathered, was not without a fight by the multinational oil companies which sought to maintain the status-quo, but with the provision of Section 72 of the Insurance Act 2003 and the support of major stakeholders, the oil majors gave in for the participation of domestic underwriting companies.
Industry sources explained that in the past three years, underwriting companies had established oil and gas departments and spent large amount of capital vote to develop human capital locally and abroad to acquire technical skills in oil and gas underwriting.
Besides, the support of the National Insurance Commission (NAICOM) insisting on local insurance companies participation in the juicy oil and gas business as stipulated in Section 72 of the Insurance Act 2003.
There was also the collaboration of the Nigerian Local Content Division of NNPC for local insurance company's participation to meet government's target of 45 per cent by 2006 and up to 70 per cent by 2010.
The development which is an indication of growing confidence of NNPC and oil multinationals on the domestic insurance companies would go a long way in reducing the huge capital flight in the insurance sector as well as boost the premium generation in the industry.
For instance, the Executive Director, Marketing, Crusader General Insurance Limited, Mr. Seyi Thomas told The Guardian that the development was the result of intensive human capital development by underwriting companies in the past three years.
"We have strong underwriting capacity in oil and gas insurance, interestingly the oil majors have reacted positively to signals that Nigerian underwriting companies are improving their ability to participate in oil and gas insurance."
According to him: "The oil majors have been waiting for us to demonstrate our readiness to participate in the peak risks when you take into consideration capital intensive nature of the business and our ability to meet obligations when the need arises. We believe that the signals we have sent out are much stronger."
Thomas commended NAICOM for their support of the industry. "The regulators - NAICOM-is also helping to elaborate the signals from the industry. We must also appreciate NNPC particularly the Local Content Division because they have also been expanding the background of the local content policy works for the recognition of this signals."
He explained that the industry recognised that Crusader in the last four years had expended a lot of money to train their staff locally and abroad to acquire technical skills in oil and gas underwriting, and it is a positive development for the insurance industry in Nigeria.
Similarly, the Managing Director/CEO, Niger Insurance Plc, Dr. Justuce Clinton Uranta said that agreement of the multinational oil companies to co-opt the domestic insurance companies to participate in the energy business was a welcome development when you take into consideration the fact that NICON established an oil department in 1972 under the leadership of Chief Bailey, the former Commissioner for Insurance, principally to develop technical skills for the oil underwriting business, many of us are beneficiaries of the training scheme.
According to him, the industry together with the support of NAICOM had been working very hard to benefit from the oil and gas business as well as meet government policy on local content for insurance.
Industry sources told The Guardian that ExxonMobil, one of the oil majors, had appointed 21 underwriting companies to participate in the underwriting of the risks that would emanate from ERHA projects next year.
In a letter dated October 14, 2009, by ExxonMobil conveying the appointment notice to the successful companies, LASACO Assurance Plc was named as lead underwriter in the account.
Besides, another set of underwriting companies have also been appointed by the NNPC to underwrite risks in oil, non-oil assets of the corporation next year.
Also, Mr. Dan Okehi, consultant and chairman, Brickred Consult Limited, in reaction said that insurers in Nigeria has capacity to underwrite every business. He explained that the overall aim of the local content policy of the Federal Government in the oil and gas sector was to enable Nigerians develop and maximise the potentials for local companies participating in the business of the sector. This included the provision of insurance coverage, which before then was purchased abroad by the multinational oil companies operating in the country.
According to him, the government had set a target of 45 per cent in 2006, increasing to 70 per cent by 2010 for local participation in the energy sector by Nigerian insurance companies.
He said: "Inspite of the successful recapitalisation of the insurance companies, energy risks are still substantially placed abroad and the industry seems to be confronted with all manner of hurdles preventing them from full participation in oil and gas insurance.
"The question today is whether the insurers have sufficient capacity to underwrite 70 per cent of every business emanating from the Nigerian oil and gas sector. Yes, the industry has sufficient capacity."
