+
2015 Insurance Industry
Mega Conference
IICC
Growth Options for Insurance Business
in Nigeria
By
Bismarck Rewane
CEO, Financial Derivatives Company Ltd
July 27, 2015
+ Audience Analysis
 Commissioner
and regulatory officials of the
insurance industry
 Insurance firms and professionals
 Inaugurated in 2013, IICC is the umbrella
institute for:
The National Insurance Commission (NAICOM)
 The Chartered Insurance Institute of Nigeria (CIIN)
 The Nigeria Insurers Association (NIA)
 The Nigerian Council of Registered Insurance Brokers
(NCRIB)
 The Institute of Loss Adjusters of Nigeria (ILAN)
 Distinguished Elders and Leaders of the Insurance
Industry

+ Audience Analysis
 Established
 Policy
alignment
 Regulator
 Self
as an advocacy vehicle for:
practitioner collaboration
regulation and best practice
 Upgrading
principles
local practices with universal
+ Background
 The
insurance industry in Nigeria has
underperformed the economy in its growth
 Its
profitability and size has been suboptimal
 Relative
to the financial services industry and
global peers
 The
industry has been subject of new capital
requirements and capacity rules
+ Objectives of Presentation
 Discuss
the alignment of the new regulations and
the business philosophy of an open economy
 To
understand the new economic challenges and
opportunities of Nigeria under a new leadership
 To
discuss the wider implications of the
commodity price shock on the economy, insurance
values and risks
+ Outline
 Historical
 Nigerian
 Oil
Link between Britain and Nigeria
Economy: Basic Facts in 2015
Price Shock and its Impact
 Policy
Options, Choices and Actions
 Implications
 Case
on the Insurance Industry
Study for Developing Economies: Singapore
 Growth
Options & Opportunities
 Summary
and Outlook
+ Historical Link Between Britain
and Nigeria
+ The Industry and Britain
 First
insurance company in Nigeria was an
offshoot of Royal Exchange Assurance London
 Subsequent
insurance firms had strong British
ties and operating models
 Prior
to the Indigenization decree of 1976, Britain
had majority stake in the industry
 The
United Kingdom insurance industry
received premiums of £50.2bn in 2013
 Total
premium income in Africa during the same
period was £46.3bn
+ UK Insurance Sector
 Integral
part of the financial services industry
 1229 insurance companies
 Employs approximately 320,000 people
 Funds under management: Over £1.8trn
 Total Premiums written (2013): $351.26bn
 7.35%
of world total world premiums
 Insurance
Penetration: 12.18%
 Insurance and pension funds account for 1.6% of
GDP
 The contribution of brokers adds another 1%
 30% of premium income comes from overseas
+ UK Insurance Sector
 UK
insurance cluster composed of:
 Underwriting
 Broking
 Actuarial
 Marketing
 Operating
 General
across a range of sectors:
insurance
 Life
 Wholesale
 Reinsurance
 Supported
by strong regulatory environment
+ UK Insurance Sector
 The
cluster and the Lloyd’s market in London all
operate internationally
 Have
a highly developed skill base
 Provides
expertise unmatched by other financial
centres
 Fosters
a creative environment where innovative
solutions can be developed
 Specialize
in global markets
+
Nigeria
+How far away is Nigeria from the Model?
 Insurance
accounted for 13% of the financial
sector’s GDP in 2014
 Other
 In
financial institutions:87%
UK, insurance accounts for 20%
 Other
financial institutions: 80%
Nigeria
2014
GDP per
sector
(N’bn)
Q1’15
% of Total
fin. sector
GDP
GDP per
sector
(N’bn)
% of Total
fin. sector
GDP
Financial
1,724
Institutions
87%
501
89%
Insurance
13%
63
11%
259
+How far away is Nigeria from the Model?
 Growth
rate of 5.11% in Q1’15 from Q1’14
 Contribution to GDP: 0.39%
 Consists of 58 insurance and reinsurance companies
 27 are listed on the Nigerian stock exchange
 Statutory regulators are National Insurance
Commission (NAICOM) and Chartered Insurance
Institute of Nigeria (CIIN)
Number of Licensed Companies in Nigeria
Life
15
Non Life
29
Composite
12
Re-Insurance
2
+How far away is Nigeria from the Model?
 Risk
areas covered varies across insurance
companies
 E.g. 54%
of risk covered by Custodian and
Allied Plc. is in oil and gas
Class Of Business
% of Total Risk Areas Covered
Accident
13.2%
Engineering
2.8%
Fire
15.2%
Marine
4.8%
Motor
9.1%
Oil & Gas
53.6%
Bond
0.4%
Aviation
0.9%
+ How far away is Nigeria from the Model?
 According
to NAICOM, total net premium
estimated at N188.75bn
 Gross
premium at N258.40bn
Life and Non Life Insurance Premiums, 2013 ($’m)
Direct Premiums Written
Non Life premiums *
1,406
Life premiums
457
Total Premiums
1,863
% of total world premiums
0.04%
* Includes accident and health insurance.
Source: Swiss Re, sigma, No. 3/2014; Insurance Information Institute
+How far away is Nigeria from the Model?
 But
issues are gradually being resolved
 Industry
 There
is consolidating
have been M&As
 Crusader
insurance Vs Custodian & Allied
 AXA
Insurance acquired Mansard
 FBN
Life acquired OASIS insurance
 Increasing
 Import
level of foreign ownership
of international best practices
 Prospect
of improved growth
+
Nigerian Economy: Basic Facts in
2015
+ Economy
 SSA’s
 26th
largest economy with GDP of $568.5bn
largest economy in the world
 0.7%
of Global GDP
 35%
of African GDP
 76%
of ECOWAS GDP
 Has
consistently outperformed the SSA
average growth in the last 10 years until 2015
+ Slowing GDP Growth Rate
 Has
a 5 year average growth rate of 6.72%
 Q1’15 GDP slowed to 3.96% from 5.94% in
Q4’14
 2015 growth of 4.3% lags SSA’s average of
4.5%
Real GDP Growth Rate (%)
7
6
5
4
3
2
1
0
Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15
+ Structure
 GDP
is more dependent on services than
production in a 55:45 ratio
 Largest sectors are growing sub-optimally
 Below Nigeria’s economic growth of 6.22% (2014)
 But insurance sector surpassed it (8.27%)
Largest Sectors
2014 Contribution
to GDP (%)
2014 GDP growth
Rate (%)
Agriculture
22.9
4.27
Trade
17.64
5.88
Telecoms
8.34
4.75
Oil & Gas
10.8
-1.32
Insurance
0.39
8.27
 Trade
consists of formal & informal trade
 Informal trade accounts for about 90%
 Formal trade is approximately 10%
+ Misery Index- Underemployment +
Unemployment +Inflation
 Misery
index has increased to 33.6% in Q1’15
45
40
35
30
Underemployment
25
Unemployment
20
Inflation
Misery Index
15
10
5
0
2010
2011
2012
2013
2014
2015 Q1
Source: NBS
+ Gross Capital Formation
Stagnating
35
investing enough in
30
fixed capital
25
 Nigeria’s gross Capital
Formation lags its peers at
20
15 % of GDP
 Singapore: 20%
15
 Brazil: 18%
 Turkey: 20%
10
 Capital/recurrent ratio in
5
2015: 83/17
 Buhari is targeting 30/70 in
0
year and 40/60 in 2016
GCF as % of GDP
 Not
Nigeria
2005
2006
2007
Brazil
2008 20009 2010
Singapore
2011
2012
2013
Turkey
+ Income is Growing but Consumption is
Lagging
 Growth
in aggregate
consumption of 4.4% is
relatively at par with GDP
growth of 4.3%
 Income is stranded at the top
of the pyramid
 Gini coefficient is 48.8
 Top 20% owned 25% of
income in 2008
 Top 20% now control 35% in
2013
35
30
25
20
15
10
5
0
2010
2011
2012
2013
2014
2015
2016
2017
-5
-10
Aggregate Consumption (%)
GDP Growth (%)
+ Relationship between Consumption,
Savings and GDP
 Insignificant
positive relationship between
national savings and interest rates
80
70
60
50
Interest rates
40
National Savings %GDP
30
Consumption %GDP
20
10
0
2010
2011
 National
2012
2013
2014
2015
2016
2017
savings is 19% of GDP
 Insurance constitutes 1.7% of national savings
+ Average Consumer Basket- EIU
 Consumer
expenditure is dominated by FB&T
 Accounting for 65% of household expenditure
 Expenditure on transport and communications
is expected to increase
 Anticipations
of a fuel subsidy removal
 Growth in mobile phone market
 In
reality, largest spending is on:
 Education
 Health
 Feeding
 Alternative
power
+
Consumer Expenditure (% of Total)
70.00% 66.37%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
18.14%
3.19% 3.79% 1.26% 4.50% 1.11% 1.32% 0.31%
Source: EIU
+
Where is the Nigerian
Economy Now?
+ The Known Knowns
Economic Variables
•Nominal GDP of $568bn
(2014)
•GDP growth rate of 3.96%
(Q1’15); 4.3% (FY’15)
•Inflation of 9.2% (June)
•Unemployment rate of 33.6%
•Exchange rate spread of N45
•Oil price is down 50% from
2014’s peak of $116pb
Fiscal Policy
•2015 budget of N4.49trn
•Budget revenue of N3.45trn
•Fiscal deficit in excess of 2%
•Oil price is 9.4% above
benchmark oil price of $53pb
Political
•Buhari is President
•Economic patriot
•Kept the markets guessing
•In no hurry to announce
cabinet
•NSA and service chiefs
•PDP has become a regional
party as a proxy for former
Biafra
•APC is a mix of interest
groups that need to be
aligned
Monetary Policy
•CRR harmonized
•MPR unchanged at 13% p.a.
+ The Unknown Unknowns
Political
 Cabinet members, heads of agencies, ambassadors,
Ministers
 Full extent of anti-corruption drive
Fiscal policy
 Fiscal policy direction
 Supplementary budget
 Whether fuel subsidies will be removed or
maintained
 Increase in VAT or implementation of new taxes
 Structure of tariffs and duties
Monetary policy
 Approximate or true value of the naira
 Inflation in the next 2-3months
+
Oil Price Shock and its
Impact
+ Oil Prices Rebound in Q2’15 but Falling
Again
 Oil
prices rebounded more
than expected in Q2’15
 Gained 15% in Q2 to an
average of $62pb

Down 53% from June 2014 peak
of $116pb
 Reflecting
higher demand and
 Expectations oil production
growth in US will slow
 But concerns about Iran’s deal
and oversupply in the market is
pushing it back towards $50pb
Oil Price ($’b)
70
60
63.59
54.52
52.99
50
40
30
20
10
0
Jan'15
Jun'15
Jul'15
+ Pre-Oil Shock (2010-2013)



60
Export prices were increasing faster than the change in import
prices
Resulting in a positive terms of trade
Consumption outpaced GDP growth after a dip caused by the
partial removal of fuel subsidies
Terms of Trade
120
50
100
40
80
35
Growth in GDP vs
Consumption
30
25
20
30
60
20
40
10
20
15
10
5
0
0
0
2010
2011
Export Prices (% change)
Terms of Trade (RHS)
2012
2013
Import Prices (%Change)
-5
2010
2011
2012
2013
-10
GDP (% change)
Private Consumption (% change)
+ Post Oil Shock
US $
Oil Price Vs. Aggregate Consumption
Sources: OPEC, EIU


According to EIU, Nigeria’s aggregate consumption was $408.4bn
compared to GDP of $568.5bn in 2014
Projected to decline to $363.3bn in 2015 against nominal GDP of
$491bn
+ Movements in export and import prices

Export and import prices dipped due to the plummet in oil
prices

Exports falling faster than imports, negatively affecting our terms
of trade

Crude oil being a major export
Refined crude being a major import

60
120
50
100
40
30
80
20
10
60
0
-10
2010
2011
2012
2013
2014
2015
2016
2017
40
20
-40
-50
Import Price (% change)
Terms of Trade (2005 = 100)
-20
-30
Export Price (% change)
0
+ Exchange Rate and External Reserves
 Exchange
rate differential now at N45.57 from
N24 in May
 Interbank: N198.43/$
 Parallel: N244/$
 External
 Before

a marginal recovery in July to $30.7bn
YTD decline is 10.94% ($3.77bn)
 Import

reserves fell 15.92% ($5.49bn) in H1’15
cover of 4.88 months
Well below EM average of 11months
+
Policy options, choices &
actions
+ Policies Implemented (January – June)
 Fiscal
A
Policy
N10 cut in PMS price to N87
 Trade
Policy
 Common
 Monetary
 Net
External Tariff implemented
Policy
Open Position reviewed upwards to 0.5%
 RDAS scrapped, IFEM adopted
 CRR debits now weekly
 CRR harmonized to 31%
 MPR unchanged at 13% p.a.
+ CBN’s Administrative Policies
(January – June)


RDAS and interbank funds restricted to LC’s, Bills
for collection and other invisible transactions
Limit placed on card usage abroad

Reduced from $150,000 to $50,000
Dollarization of the economy is completely
prohibited and Naira to remain the only legal
tender
 41 items excluded from IFEM and BDCs

 Staples: rice, poultry
and tinned fish in sauce
 Euro bond/ forex bonds/ share purchases
+ MPC Meeting in July
 MPC
maintained status quo
 Despite
inflation and exchange rate concerns
 MPR:13%
 CRR: 31%
 Impact:
 The
naira fear factor will increase
 Parallel
 Naira
N250
market premium will increase
will depreciate in the parallel market towards
+ Outlook: MPC Decision (September)
 CBN
may allow currency to float to N205-210
 Cut MPR from 13% p.a. to 12% p.a.
 Reduce the CRR
Rationale:
 The
currency will find its true value
 Encourage lending & stimulate economic growth
 Remove the fear factor
 Stimulate economic activity with accommodative
monetary policy
 International investors will increase their positions in
Nigeria
 The divergence in rates will reduce
+ Outlook: MPC Decision (September)
 Impact:
 Short
 Risk
term increased inflationary pressure
investment flow reversal
 Relative
stability of the exchange rate
 Slowdown
in the depletion rate of the external
reserves level
 Lead
to 2% decline in interest rates
 Govt
borrowing costs will fall by N18.8bn in 2015
+
Fiscal Policy
+ FAAC vs. Oil Prices
 Government
funds highly dependent on oil revenues
 Direct relationship between FAAC and oil prices
FAAC funds vs Oil Prices
120
800
700
100
600
80
500
60
400
300
40
200
20
100
0
0
Oil prices $/pb
FAAC Funds (RHS) N'bn
+ State Allocation trends downwards
 Projected
state allocation for 2015 is almost half of
2013
 Other sources of revenue needed to fund government
expenditure
70
Gross Statutory Allocation (N'bn)
60
50
40
30
20
10
0
2013
2015 (projected)
+ State Debt: Bailout Funds Approved
A
comprehensive relief package approved to
address outstanding state debt obligations
 In
excess of N800bn
 N413.7bn
($2.1bn) to be shared amongst the
three tiers of government
 2.15%
A
of money supply
CBN special intervention fund of N250-300bn
has been created to provide soft loans to the
states
 Will increase consumers purchasing power and
productivity
+ Supplementary Budget
 Buhari’s
administration expected to draft a
supplementary budget
 It
will reflect further austerity measures
 Likely
be funded through domestic borrowing
 Blocked
leakages can increase revenues by 15-
20%
 Subsidy
Removal (25% of budget) will help
increase income
+ Subsidy Removal:
Price Elasticity Demand of PMS
 Subsidy
payments were 0.85% (N971bn/
$4.9bn) of GDP in 2014
Subsidy N'bn
1400
1200
1000
800
600
400
200
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Impact
of
a
Subsidy
Removal
+
National Income Identity
Y=C+I+G+(X-M)
Y= $568bn
C=$408bn
I=$95bn
G=$46bn
X-M=$17bn
Y= $568bn
C=$403.1bn
I=$95bn
G=$50.9bn
X-M=$17bn
•Removal of fuel subsidy is expected to move $4.9bn from C to G to
be used for rehabilitation of oil refineries and payments of salary
arrears
+ Subsidy Removal
 Remove
subsidy and reduce import bill by 15-
20% of bogus demand
 To
complement 26% plus 5% devaluation
 Will
equal 48% decline in oil revenue
 Bringing
 Putting
equilibrium to forex market
the naira in the real equilibrium
exchange rate path
+
Exchange Rate Policy
PPP:
Is
the
Naira
Undervalued
+
Jun-15
=N=
US $
PPP ('=N=/US$)
=N=
Jun-14
PPP
('=N=/US$)
US $
Bottle of Coke (50cl)
100
2.00
50.00100
2.00
50.00
Heineken
350
2.11
165.88350
1.50
233.33
Hamburger
1,200
4.80
250.00850
3.14
270.70
Uncle Ben's rice (S. Pkt)
1,500
3.48
431.031,500
3.50
428.57
Toyota Corolla
6,900,000
Bottled Water (1ltr)
100
0.41
241.21100
1.49
67.11
Big Loaf Bread
300
3.50
85.71300
2.50
120.00
Irish Spring Soap (1 cake)
250
3.59
69.64250
2.00
125.00
1 Packet of Benson & Hedges
200
8.00
25.00170
8.00
21.25
Chicken Drumsticks ( 1 kilo)
800
4.40
181.82800
7.45
107.38
Eggs (One dozen)
Average PPP
600
4.19
143.20400
186.75
2.75
145.45
166.70
16800
410.714,300,000
16,230
Naira Price at IFEM
198.15
PPP (%)
Decision: Naira is
Undervalued
-5.76%
Spot Rate (Parallel)
244
Outcome: Compared to official spot rate of N197/$1, the Naira is undervalued by 5.76%
264.94
160.50
3.87%
163
+ PPP Analysis vs. Burgernomics
 Using
a basket of items to determine the currency
value
 PPP index shows that naira is slightly undervalued by
5.76%
 An indication that IFEM rate may be trading at its fair
value
 But using a one item basket – the Big Mac Index
 Price
 KFC
of MacDonald's Burger in the US: $4.53
as a proxy at N1200 in Nigeria
 Using
the current exchange rate gives $6.06
 This
suggests the naira is overvalued by 25%
 The
true value of the naira based on the
burgernomics today is N248.7/$ (parallel rate??)
+
Using the Big Mac Index
One item basket: the big Mac
hamburger ($4.79)
 According to this index, only 2 countries
have overvalued currencies
 PPP holds only in the long run
 Over shorter periods, currencies are
often pushed far away from their fairvalue yardsticks by international capital
flows
 Driven by broader trends in the global
economy
 Exchange rates are currently being
buffeted by:





Euro crisis
Growing likelihood of a rise U.S. interest
Slowdown in China
Sharp drop in the oil price
+ Currency Adjustment
 S&P
says Nigeria cannot avoid another devaluation
of about 15%
 RenCap
sees naira depreciating by 18% over the
next 6-12 months due to:
 Pent
up forex demand
 If oil prices remain low
 Little scope for further policy tightening
 We
think further devaluation may not be necessary
if fuel subsidy is removed
 If
at all, adjustment will be marginal
+
Implications on the Nigerian
Insurance Industry
+ Implications on the Insurance Industry
Inflation Risk
 Higher
inflation increases the cost of future claims on
current policies
 Erodes
asset values
 Increased
inflation makes higher interest rates more
likely
 Implies
value of total assets under management
could drop

In the 2008 financial crisis, insurance companies were
some of the biggest losers
+ Implications on the Insurance Industry
Interest Rate Risk
 Sensitivity
 For
varies by line of business and market
life insurers: it affects savings products where
investment returns are major source of profit
 Higher
 For
interest rate encourages savings
non-life insurers: if interest rates reduce, they
could react by raising premiums to maintain
profitability
+ Implications on the Insurance Industry
Exchange Rate Risk
A
devaluation increases the risk that the assured
will face higher replacement cost
 It
increases the risk of non-payment of future
premiums as disposable income falls
 Premium
on foreign re-insurance higher
+
Case Study for Developing
Economies: Singapore
+ State of the Singaporean Economy
 Singapore
has one of the most open and
competitive market in the world
 It is ranked the best country to do business in the
world
 It takes 3 days to start a business in Singapore
compared to world’s average of 34 days
 Highly skilled workforce and favourable tax regime
created a conducive business environment
 Its economy is largely dependent on exports
 Consumer
electronics
 Information technology products
 Medical and optical devices
+ State of the Singaporean Economy
 GDP
estimated at $307.9bn in 2014
 Growth
rate of 2.9%
 Economy
contracted during the global
financial crisis in 2009 but continued to grow in
2010 due to renewed exports
 Per capita GDP higher than most developed
countries
 $81,300
 Has
(2014)
a low unemployment rate of 2% (2014)
 The only Asian country to have AAA credit
ratings from all 3 major credit rating agencies
+ How did they get here?
 The
Singapore model was born out of
necessity
 Singapore had a relatively small domestic
market
 For the economy to thrive, it decided to open
its economy to external markets
 Its government enacted economic policies to
safeguard the country from vulnerability in
depending on external markets
 This economic system where both market and
the state have equally strong roles in the
government is the Singapore model
+ Singapore Insurance Sector
 One
of the most developed insurance markets
in Asia
 Regional hub for Asia Pacific region
 161
registered insurers and reinsurers
 Assets
Under Management: $130bn (48% of
GDP)
 Total Premiums written (2013): $27bn
 0.57%
of world total world premiums
 Regional
 Global
centre for reinsurance
reinsurers making up large proportion of
the offshore non-life business written
+ Singapore Insurance Sector
 High
insurance penetration rate – 7.3%
 High
per capita expenditure on insurance
 Health
insurance has been growing rapidly
 Increasing
 Dominated
 High
demography of ageing population
by life insurance
income levels and high savings rate
 Life
insurance penetration (67.8% of households)
 Life
premium density 5.5% of GDP
+ Singapore Insurance Sector
 Non-life
insurance penetration has risen over
the years
 From
 High
 Low
2.55% in 2005 to 3% in 2013
per capita expenditure on insurance
interest rates and investment returns
impacting profitability
 Focus
is now on core functions like
underwriting and claims
+ Singapore’s Insurance Challenges
 Regulations
addressing insurer solvency,
capital and risk management have been
changed
 New
rules could swamp the industry with costs
and compliance
 Longstanding
strategic positions maybe
altered
 Costs, prices
and returns could soon become
unsustainable if changes are mismanaged
+ Global Insurance Challenges in 2015
 According
to Ernst & Young, key challenges for
the insurance industry in 2015:
 Rising
 Soft
competition
pricing conditions
 Tight
profit margins
 Low
interest rates will make savings product
difficult to manage
 Cyber
 Lack
crime and data insecurity
of experienced talent due to higher
mobility and increased competition
Growth Options and
+
Opportunities for the Nigerian
Insurance Industry
+ Growth Options and Opportunities
 According
to Ernst and Young, the focus of
insurers in 2015 is “technology”
 Investing in digital platforms that strengthen
their relationships with customers across
product classifications and geographies
 Capitalize on data analytics, cloud computing
and modelling techniques
 To sharpen market segmentation strategies,
reduce claims fraud and strengthen
underwriting and risk management
+ Growth Options and Opportunities
 Smart
use of Technology
 Promoting
mobile app services: to take pictures
of a scene; file claims

Custodian Allied already using it
 Sale
of life insurance using mobile phone
network to 126million active lines
 Mobile
phone ownership is 84.9% in urban areas
and 55.6% in rural areas
 Using
social media to increase the variety of
distribution channels
+ Growth Options and Opportunities
 Cost
control initiatives
 Outsourcing
 Extend
borders of insurability
 Attractive
 Value
product packaging
creation and differentiation strategies
 Further
merger & acquisitions
 Increased
 Cost
a business process?
value generation
efficiency in the long term
+ Growth Options and Opportunities
 Diversify
investments
 Consider
long-term investment in infrastructure
and project finance
 Close
collaboration between government and
the industry
 To
draft reforms that will promote the work of the
industry
 Better
and less burdensome regulation
+ Growth Options and Opportunities
 Favourable
 Young
demographics
and growing population of approx. 170m
people
 Growth
rate of 2.6% (4m)
 Implies
potential increase in customer base
 Attracting
new talent
 To
maintain dynamism and capacity to innovate
 To
meet changing customer demands
+
Summary and Outlook
+ Summary
 Nominal
GDP estimated to reach $525bn in
2016
 From
$488bn in 2015
 Sectors
that will drive growth: Agric, Telecom,
Financial services, Petroleum and
manufacturing
 Oil prices in H2’15 are likely to soften towards
$45-50pb
 Challenges remain that will constrain growth
 Policy options are limited
+ Policy Outlook
 Aggressive
 Removal
tax collection
of subsidy to increase fiscal revenue
 Currency
adjustment and possible removal of
forex controls
 Accommodative
 Electricity
 CET
interest rate policy
tariff adjustment
implementation
+ Critical Events to Watch out for
 MPC
meeting in July and September
 Announcement
 Likely
shake up in regulatory appointments
 Passage
 World
of Cabinet names
of a supplementary budget
Bank meeting in Peru
+ Economic Outlook (Oil at $65pb)
 GDP
growth rate forecast of 5.5% in 2016
 From
4.3% in 2015
 Increased
focus to diversify away from oil, with
huge investments in sectors such as
agriculture, manufacturing and power
 Fuel subsidy will be removed and the passed
PIB annulled
 Aggregate consumption will rise
 Slowdown in the depletion rate of fiscal
revenue and external reserves
+ Economic Outlook (Oil at $65pb)
 Inflation
will trend around the 11% level,
reflecting a weaker naira
 Accommodative
interest rate policy
 Efforts
to create a more attractive business
environment likely to produce modest results
 Huge
investment in infrastructure and a
Marshall plan to reflate the economy
 This
will positively impact on purchasing
power
+
Economic Outlook (Oil at $50pb)
 Contraction
 Depletion
 Sharp
in GDP growth rate to 3.5%
of fiscal and external buffers
reduction in monthly FAAC to an average of
N300bn
 Fiscal
deficit will widen to above 3% of GDP
 Sharp
fall in external reserves below $25bn
 Increased

pressure on the naira
As the CBN’s ability to defend the currency declines
+
Economic Outlook (Oil at $50pb)
 Currency
adjustment and possible removal of
forex controls
 The
 As
removal of fuel subsidies will be inevitable
there will be no subsidies at low oil prices
 Inflation
will reach 13% because of imported
inflation
 Increase
in the electricity tariff
+
Economic Outlook (Oil at $50pb)
 Austerity
•
measures will be implemented
Possible increase in taxation
 Will
speed up diversification and investment in
Agriculture
 Cut
in government expenditure
 Reduced
spending on infrastructure
+ Risks in Order of Magnitude
 Escalation
of insurgency and Boko Haram
attacks
 Fuel
subsidy removal
 Exchange
rate adjustment
 Trade
restrictions
 Sharp
fall in the price of oil
+ Insurance Outlook
According to EY,
 Diminishing economic growth likely to affect
demand for life and non–life products
 Stronger capital requirements will act as a
catalyst for consolidation of smaller insurers
 Changing regulatory environment will
encourage investment in real estate
 Cross border sales to commence January 2016
 Collective
investment scheme to expand further
 Improvement in data controls prompted by
newer and stricter regulations
+ Growth Expectation for Insurance
Industry
 But
growth in the insurance sector may remain
positive
 Likely
to be driven by
 Automotive
 Oil
policy
& gas
 Housing
sector
 Opportunity
for growth in the insurance sector in
the next four years is estimated at $105.24bn
 If
it grows at par with South Africa (12% of GDP)
+
Thank You