Examining the Insurance Industry in Nigeria - Free Essay Example

Nigeria is a West African country having an area of 923,768 square kilometers. The geographical position of Nigeria is 3o and 15o east between longitudinal arena and 4o and 14o latitude in north. It has a population count near to 150 million. The growth of population is moderate and it is growing by around 2.7. The internationally country is bounded by on the West by the Republic of Benin; on the East by the Cameroon Republic; on the North by Niger and Chad Republics and on the South by a vast coastline of the Atlantic Ocean (John Harris, 1959). The Landscape The physical landscape of Nigeria is can be broadly classified as plains, lowlands, highlands and plateaus. The Coastal and Niger Delta area fall under low lands. Undulating plains which covered most part of the western region and the sokoto plains which are by characteristics plain are fall under plain land. The Chad basin can also be categorized under this forum these are located on the extreme northeast of Nigeria. The highlands are consisting of the Jos plateau, Mandara Mountains, Adamawa highlands and Obudu plateau. River System Niger and its tributary is the largest river in Nigeria. It flows from the North to west and joined by its major tributary. Another river named Benue flows from northeast which makes a confluence at Lokoja. The river Niger meet into the Atlantic Ocean in the end while before that it forms a network of tributaries which are known as Niger Delta. Other major rivers include the Ogun, Benin, Imo , Cross River, Kaduna, Shansha, Yobe, Komadugu, Hadijia, Shari and Sokoto. Nigeria is very rich in natural resources it has diversified climatic conditions and diversified natural resources too. Its agriculture, industries and mineral resources are very rich and diverse which also include oil and gas (William Arnett, 1979). Weather Season The climatic condition of Nigeria is varied in two major seasons. It has the wet season or rainy season after that the dry season fall. The south Nigeria is hot in comparison to the Northern part. The temperature varies from 35 0C in summers to 230C in Southern part of Nigeria while in Northern region the temperature various from 310C to 180C in the north. Though due to Global warming the average temperature has gone up in the last decade. The total annual rain fall varies from 3800 mm at Facades to below 650 mm at Maiduguri which is located in the north east of the country. Political Structure Nigeria is a democratic country which follows the federal structure of the government. It has three arms model with the executive, legislative and judicial systems are in place. In 1999 the Federal government decentralize and distributed the power in 36 small states and 774 local governments so that the development activities and their execution can be further enhanced. ICT Impact: Its Advancement Development Introduction In the past few decade information technology has attained a great deal of attention from all over the world across all the streams. It is most sought field of study not only from academia but also from business prospective because of its application in daily routine work into many corporations. In present Scenario the business environment is very dynamic and changing very rapidly. Customers are more knowledgeable, aware and ever demanding due the advancement in information technology. They can access any information about any product, service, and query, anything within a second or with a click of mouse. Business organization especially Insurance industry in the 21st century operates in such a fierce competitive and dynamic world. The word dynamic is used to explain the present climate of economic uncertainty and the advancement in information and communication technology. The management cannot ignore the information system and its advancement as they are working in contemporary environment. It has been found in their study that all the fortune 500 companies cash flow is linked to the information and communication system (Laudan Laudan, 1991). It has become imperative for insurance industry to critically analyse the fundamental importance of applicability of information and communication technological concept. It has become a regular practice for insurance companies to be local and internationally competitive. ICT directly affect the decision making ability of management and their offering. It plays a vital role in planning and offering to a particular product and services. It is continuously changing the way how insurance organization maintains their corporate and customer relationship. ICT has also enhanced the quality and speed of services offered by the insurance service provider. Literature Review of ICT in Insurance Industry Insurance service providers are requiring modifying and improving their traditional operational practices to make their business viable in the 21st century (Harlod and Jeff, 1995). They found that the one of the most significant shortcoming of insurance industry is negligence of information and communication technology advancement. The senior management need to understand the grasp of importance of ICT technologies in formulation of strategic decision accordingly. Woherem (2000) claimed that the financial organizations which will modernize their payment and other delivery operational activities and apply new ICT technologies are likely to survive and prosper in the new millennium. He advice the banks and other financial institutions to re-examine their service offering and delivery systems in order to re-frame them as per latest framework of information and communication technology. The insurance industry in Nigeria has been passed through various advancement in ICT in through the past few years. In the pursuance of survival, global relevance, maintenance of existing market share and to sustain development many organization had already exploited the advantages ICT by applying some automated devices which imperative for industry. The study evaluates the impact of ICT on insurance sector in Nigeria, how they have impacted the insurance market in Nigeria and their direction of future. Information and Communication Technology Advancement As per Khalifa (2000) Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment such as automated teller machine and debit card. It is a term which is usually covers the usage of electronic technology for communication, collection, storage, dissemination and presentation of information. Some of the financial services are revolutionized by the use of ICT technologies for example to purchase a insurance now customer can avail all the related information online, they do not require to consult an agent and to stand in a queue to meet the insurance personal, and waste a substantial amount of time, money and energy. They can easily open their policies online submit online document, transacts online and other queries can be solved easily (Irechukwu, 2000). Now the consumer get premium alert via e-mail, phone, messages etc which reduces the chances of any mistake. Communication techn ology also dealt with the physical devices such as hardware as well as software devices which connect or work as a interface between hardware devices. Software link also connect some of the hardware devices to transfer data from one location to another location (Laudon and Laudon; 2001). ICT product used in insurance industry includes smart card, Telephonic services, Online services, MICR, Electronic Data interchange, Electronic fund transfer, electronic access to the account and policies documents. Several researches has been done to identify the impact of ICT in insurance sector within the Nigeria country. Agboola et al (2002) discussed the basic attributes in which the ICT has played a crucial role within the economy of Nigeria. They include the use of Magnetic ink character reader (MICR) for various document verification processes. It makes the procedure of encoding, reading and sorting of document more convenient. Plastic card and electronic fund transfer system is the second attribute which make the money settlement at the same time and more safe and convenient to use. The automated delivery channel which makes it easier for service provider to convey their message to the consumer. Use of interactive TV channels and internet made revolution in insurance industry. Agboola (2001) studied the impingement of ICT on the financial services in Lagos and found that with the advancement in information and communication technology the financial services offered by the institutions have been significantly improved in Lagos. The study was limited to the financial nerve of the Nigeria, Lagos and concentrated on only six major financial institutions. Woherem (1997) discovered that Nigerian financial institutions have significantly performed better since 1980 in the prospective investment in information and communication technology than the other industrial sector of Nigeria. An analysis of the study carried out by African Development Consulting Group Ltd. (ADCG) on IT diffusion in Nigeria shows that financial institutions have invested more on IT, have more IT personnel, more installed base for PCs, LANs, and WANs and 6 a better linkage to the Internet than other sectors of the Nigerian economy. The study, however pointed out that whilst most of the financial institutions in the west and other parts of the world have at least one PC per staff, Nigerian banks are lagging seriously behind, with only a PC per capital ratio of 0.18 (Woherem, 2000) More or less the offering from insurance organization is standardised. They are offering same set of product and services. The banking and insurance industry increasingly utilises computers and telecommunication equipment connected via the Internet as the ordinary distribution channel of their services. Ranging from Online brokerage and Home banking to Electronic insurance contracts by companies like Cosmos Direct, information and communications technologies (ICTs) have changed the financial service industry significantly over the past decade. By looking at the expenditure in financial industry on information and technology investment is comparatively high than any other industry after 1995 (for the US see e.g. Council of Economic Advisors, 2001, for the EU see EITO, various yearbooks 1996 until 2001) The key to success for financial industry is to grow by continuous investment in technology and advancement in financial services. The online premium payment facilities, Account statement, Access their portfolio from any location in any branch are some of the little advancement which has taken place in the insurance industry in Nigeria. With the availability of internet it has given the power to user to access their investment in insurance from any corner of the world. While the revolution in mobile technology has also changed the way people do transactions. While it is not the end of innovation still a lot of transforming process has yet to be completed. Still a lot of new innovations and labour-saving process has to be implemented in near future. The Structure of the Nigerian Financial System The financial system of Nigeria which are comprmised of banking and non-banking activities.. The regulatory body of financial system in Nigeria are), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Federal Ministry of Finance (FMF Federal Mortgage Bank of Nigeria (FMBN), National Insurance Commission (NAICOM), National Bank of Communities Board (NBCB) and Securities and Exchange Commission (SEC). Federal Ministry of Finance (FMF) It play a vital role in the finance related strategic decision taken by the government it helps and suggest the government of Nigeria on its financial operation and other monetary counts. The Central Bank of Nigeria (CBN) The central bank of Nigeria act 1959 lead to the establishment of the Central bank of Nigeria and it started its operation soon early in July, 1959. It is the apex body in Nigerian financial system. Its same like federal bank in United State America and Reserve Bank in India. Their primary functions are to make sure the monetary stability in the state and to maintain a sound financial system. It also acts as a bank and financial adviser to the federal government. It is the bank of bank, it also provide framework and platform for other financial institution to operate effectively (Yanusa, 1998). The Nigerian Deposit Insurance Corporation (NDIC) NDIC is autonomous body and directly answerable to Federal Ministry of Finance. it complement the supervisory and controlling, and regulatory role of CBN in financial activities. NDIC is formed in 1989 to deposit insurance and other related services for banks so that the confidence in banking industry will strengthen. It has power to check the books and accouts of the insured bank and other deposit taking financial institutions. It ask only one percent of the deposit liabilities from banks as insurance premium. The maximum cap of claim exercised is limited to N50, 000 in the case of bank failure. It has planned to hike the exercised limit from N50, 000 to N200, 000. The Securities and Exchange Commissions (SEC) Under the Sec act, 1979 Securities Commission Exchange was established. Formerly it was known as Capital Issues Commission. As the name suggest it play a dynamic role in capital market and the apex body capital market regulation. Any merger and acquisition require to be get approve from SCE prior to their exercise. It establishes the unit trust. It maintain the surveillance on the capital market to enhance it efficiency and effective utilization of resources. It issues and designs the guideline for the establishment of the stock exchanges and after that the deregulation of the Nigerian capital market. It also releases the guideline related to the foreign direct investment in Nigerian capital market. Debt Management Office (DMO) Debt related affairs are left as there is was no autonomous body to regulate and direct it. Hence the Federal Government of Nigeria has taken a major step and formulated an autonomous debt management office (DMO). By the creation of DMO all the debt related affairs has been handled by it, hence a consolidated picture and proper coordination has been developed between various agencies as these are handled by a single agency. The DMO centralize and coordinates the entire debt recording and management related activities of Nigeria. It includes debt service forecast, advising of debt negotiation, debt service payment and new borrowings (Yasuna, 1998). National Insurance Commission (NAICOM) The National Insurance Commission (NAICOM) is new form of the Nigerian Insurance Supervisory Board (NISB). It is powered by more efficient and effective administration, supervision, regulation and control over the insurance business in Nigeria. It is policy making body regarding insurance activities. The specific function of the body consist of the establishment of the procedures for the conduct of insurance business, protection of insurance policy holders and the establishment of a council to which any issue, complaint can be submitted related to any insurance company and their intermediaries by the customer. NAICOM manage the adequate level of cash and reserve, management practices, the level of technical expertise and engagement of ICT. The Federal Mortgage Bank of Nigeria (FMBN) The Care of assets and liabilities of Nigerian Building Society is taken by the Federal Mortgage Bank of Nigeria (FMBN). It provides the advisory services to and executes the research related to housing and development activities. The FMBN is empowered in 1990 with the adoption the housing policies to license and regulating the institution which deal in pimary mortgage in Nigeria and act as a apex body for regulating mortgage finance industry. The Federal Mortgage Finance dealt with the financing which was earlier comes under the jurisdiction of Federal Mortgage Bank of Nigeria. While it is still having its regulatory role and it take the guidance from Central Bank of Nigeria. (Bassey Enamatte, 2001). The Money Market and Its Institutions The money markets are short-term debt instrument, it manipulate or facilitate the sector which are facing a deficit problems. It gets the funds diverted from the cash plus sector of the economy to the other sectors of the economy which are experiencing a downfall. The deficit unit can be public or private; they can access the money market to meet their short term need. They can trade in Commercial Papers (CP), call money, Certificate of Deposit (CD), Treasury Bills and Treasure Certificates. The horizon of the money market has been improved significantly with the help of the Open Market Operation (OMO) commenced by the CBN. Discount houses worked as a catalyst and it helped in the raising of participant member in the market. These institutions club the hub of a financial system. It consist of special purpose bank, commercial, rural development, merchant bank, discount houses, like Nigerian agricultural co-operative bank and community bank etc. Discount Houses The discount houses were established as an intermediary between CBN, financial institution and with the other incensed banks. It directly controls the market based financial system. A discount house is a non-bank financial institution. It helps the mobilizing in securities while keeping the view of liquidity in the market (Glaser, 1992). It does by providing some discount on the money market instrument of the government securities, which lead to the purchase of these by institutions and individual. Hence in turn it creates money liquidity in the market. Some the operating major discount houses in Nigeria are Associate Discount House Limited, Consolidated Discount house Limited, First Securities Discount House Limited, Express Discount House Limited, and Kakawa Discount House Limited. Universal Banking The Universal Banking in the Nigeria has been introduced by CBN. After the formulation of guidelines for universal banking in Nigeria till now more than 10 banks are having universal banking status. Hence these banks can operate as commercial and merchant functions. Commercial and Merchant Banks Banks and other financial institutions (BOFI) act works as legal and statutory framework for commercial and merchant banks in Nigeria. Basically three main functions are performed by commercial bank in Nigeria. These functions can be classified as granting of loans and operation of payment, acceptance of deposit and settlement mechanism. A rapid growth in commercial banking sector has been observed since September 1986 as the government commenced the active deregulation on the same year (Rotberg, 2004). The number of commercial banks has been grown significantly and their offerings become too wide and complex. Nigerian Acceptance Limited (NAL) is the first merchant bank in Nigeria which started its operation in 1960. These banks take deposit and cater the need of corporate world. These banks helps the corporate and institutional customer by providing them loan syndication financing and engaging in activities such as equipment leasing, medium and long term loans project advice, debt factoring to their client. In turn they get better return on their loan and charge for their services. Now the trends have been changed and merchant banks are also performing the general banking operations. It helps them to diversify their risk and portfolio and also leads to creation of funds. Community Banks Today more than 1366 licensed community banks exist in the Nigerian market. First community bank started its operation in 1990. The National Board for Community Banks (NBCB) is the apex body which decides the suitability and feasibility for the establishment of the community banks. Basically the purpose of a community bank is to provide financial assistance to a particular community. These are self-sustaining financial institutions owned and managed by a particular and within the community members (Patike Communication, 2002). The Capital Market It is used for generating long term fund into the market. Securities and Exchange Commission (SEC) is the apex body which serve as a regulatory authority of the market; also it is the main player in the market. The Nigerian Stock Exchange (NSE) is the issuing house of securities and stock broking firm. NSF is the main exchange for large enterprise which encourages the large as well as small and medium scale enterprise to have the benefit of the public listing. Second-Securities Market (SSM) is the market for small and medium scale enterprises where the listing requirement rules are less stringent and complex. Nigerian Capital Market has enjoyed a phenomenal growth rate in the first twenty years of its inception. It has maintained its operation in the primary and secondary markets. The market capitalization has been grown from N 1.7 billion in 1980 to N 472.9 billion in years 2000. On the other hand the listed companies have grown by 92 in 1980 to 196 at the end of year 2000. In the year 2000, 21 new listing raised N 16.71 billion from the capital market to fund their expansion and development projects (Patike Communication, 2002). Keeping in the views of financial resources of big and small player Unit trust Schemes has been started in the market for the purpose mobilization of the funds. The retail customer can achieve maximum return with minimum risk on their investment. At present there are 14 Unit Trust Operation in the Nigerian market. Major Participant in the Nigerian Capital Market (Uka Eznewe, 2003) The Securities and Exchange Commission (SEC), it is the apex body and responsible for the overall law and regulation of the entire market. The Nigerian Stock Exchange (NSE), it is a self-regulatory body in NCM that supervises and surveillances the operations of the formal quoted market. Market Operators, these consist of the Issuing Houses (Stock broking firms and Merchant Banks), Trustees, Registrars, and Stockbrokers etc. Pension Fund, Insurance Companies, Investors, Unit Trusts (Institutional Investors) and Individuals. The Central Bank of Nigeria (CBN). The Federal Ministry of Finance Development FinanceÂÂ ¿Institutions (DFIS) To contribute the development of some specific sectors of the economy some specialised banks or development finance institutions (DFIs) were established. For enhancing the operation and effectiveness of the DFI a lot of structural changes have been made and most of the DFI has been merged and restructured. The Bank of Industry (BOI) and the Nigerian Agricultural Co- operative and Rural Development Bank (NACRBD) are result of merger and restructuring of the various DFIs. These two banks are engaged in agricultural development related activities and provide soft loans to industries related to agriculture. Federal Mortgage bank (FMB), Urban Development Bank (UDB) and Education Bank (EB) are some of the other existing DFI to cater the sector specific need as specified by their name. Other Financial Institutions and Funds Apart from banking institutions there are other non-banking institutions within the financial system. These institutions play an important intermediating role. Some of these institutions are as follow: Insurance Companies Insurance companies are combination of life and non-life and of those which are engage in both types of activities. There are some reinsurance firms also. The investments made by insurance companies are basically in government organization and Mortgage funds. They play a role of financial intermediary and mobilize the fund relatively for a long term. In the past decade a significant growth in the insurance industry has been observed. The sourced fund are mainly from reduction in outgoing and other assets, if calculate their contribution stand for 80.8 % of the total fund value. The insurance cover for insurance companies is provided by the National Insurance Commission. Other function of National Insurance Commission includes helping the government in attaining its economical and social goal in the areana of insurance and re-insurance. It is mandatory for all the registered insurance companies in Nigeria to park 20 % of their annual premium collected with the National Insurance Commi ssion. Finance Companies Finance companies are private or publicly owned institutions that focus in short-term, non-banking intermediation. They collect the fund from public and mobilize it by investing it in public. They channelize it through borrowing, facilitate Local Purchase Order (LPO), debt factoring, project financing and equipment leasing etc. These finance companies are controlled and supervise by CBN. BOFI act has given the power to CBN to tackle any issue related to finance companies (Odoko, 2004). Bureaux de Change Authorised since 1989 the Bureaux de change has been in lieu of to expand the foreign exchange market and to ameliorate the process and function to access the foreign exchange especially for small enterprise and users. Today there are more than 240 licensed Bureau de changes are operating in the Nigerian economy. Exchange Control Regulations In Nigeria foreign exchange transaction are taken place at the autonomous foreign exchange market. The royalties and technical fees are payable on imported technical services while on the same time profit, unconditional repatriation of capital and dividends are allowed. The disposal of assets from a repatriation of proceeds is allowed (Issac Dada, 2003). Primary Mortgage Institutions (PMIS) All the primary mortgage institutions are requiring operating within the set guideline of act no 53 of 1989. The saving are mobilize towards the development of housing societies by PMI. The total asset/liabilities outstanding were increased to the level of N 7248.2 million in 1999. To check it and make correction and to rectify it the Federal Mortgage bank of Nigeria tightened its surveillance of PMIs by issue Clean Bill of Health to 116 institutions which deal in mortgage. As a result the new criteria for primary mortgage institutions to have a share capital of at least not less than N 20 Million. Nigerian Social Insurance Trust Fund (NSITF) Nigerian Social Insurance Trust fund (NSITF) s designed to replace the defunct National Provident Fund (NPF). NPF was a compulsory pension scheme to the non-governmental employee or non-pensionable public servants who works in private sectors. The main objective of this fund to adopt a more comprehensive social securitys of the employee who work in the private sectors organizations. The basic purpose behind the creation of this fund is to keep the interest of private employees. Organizations which having at least a staff of 25 people or more than that it is compulsory for them to register under NSTIF. Employee contribution in NSTIF is around 2.5 % of their basic salary while the employer contribution is around 5 %. When the employee gets retired they got pension and other benefit from this corpus and they got a handsome return on the same also. The financial System of Nigeria has undergone some remarkable changes in the past few time. Various developmental action has been taken place some of these developments include the promulgation of the Failed Banks (Recovery of Debt) and Financial Malpractice in Banks Decree No. 18 of 1994. Creation of Financial Services Regulatory Coordinating Committee (FSRCC) by the CBN in 1994 is another major step. The agenda behind these changes is to coordinate and standardize the regulatory practices of all financial institutions in the system with a view to evolving coherence and comprehensiveness. The forbearance is granted by CBN to finance companies operating in Nigeria whereby they were given a maximum of four years to amortize their classified assets portfolio against their current profits (Charles R Ghiest, 1988). The financial system of Nigeria has observed some significant changes in recent times. It consist the announcement of the failed banks (recovery of debt) and the malpractices which are taking place in the financial markets. The most crucial development was the establishment of the Financial Services Regulatory coordination Committee (FSRCC) by the CBN in 1994. The basic aim behind this to coordinate and restructure the all financial institutions which are available in the systems. A comprehensive picture of the financial system can be prediction could become possible with the help of FSRCC. The financial companies which are operating in Nigeria forbearance has been granted by the CBN. Their asset portfolio should only be against their current profits. Managing Insurance Business A Peep into The Future The present time phase is indeed both interesting and on the same time is challenging for Nigerias insurance industry. Till few year back its was like a Beautiful Bride and luring to both local and foreign investors. It was flourishing very high and the risk base was low. In 2008 a hike 24 % has been observed in the insurance index of FSDH. Now the sector is getting more complex and competitive as new players are coming into that and they are fighting for the same share pie. The regulatory framework became more stringent and complex. The insurance service providers are obliged to work under the given guidelines. There is no free lunch in this world (J. Onoho, 1980). Recent Past The instruction made by Central Bank of Nigeria In 2004, to the banks to re-capitalize by the end of 2005 to a minimum of N25billion (about USD20million). It leads to the emergence of 25 banks which was a tough requirement at that time. Today no less than six bank out of these bank are having paid-up capital more than N 500 Billion. It can be easily inferred from this higher level of capitalization which paced the economic activities in Nigeria. Banks have also shown their active participation in insurance sector. In 2006, new capitalisation rules were also introduced in the insurance industry N2billion for Life and N3billion for Non-Life business, this was from a base of N150million and N250million respectively. 49 companies met this requirement through business consolidations and a much wider equity ownership. GDP per capital in Nigeria increased from USD 800 (2006) to USD1,300 (2007). The increase in the All Share Index was 38% in 2006 and 75% in 2007. However, Life, Health and Household insurance premiums accounted for less than 0.3% of our GDP in 2006/7. It thus seems that there are significant opportunities to deepen insurance penetration if acceptable products can be designed and appropriate marketing programmes embarked upon new capital will help finance these development needs. A peep into the future Business growth and wider ownership structures will likely lead to (management) reporting challenges in the future. Quality people and adequate information systems need to be acquired to administer, manage and report on the increased business volumes. Shareholders will require more frequent and accurate information on the business trend and their worth. Hence operating ratios, the calculation of technical reserves and declared underwriting profits will be under more scrutiny than hitherto (Cottarelli, 1997). We illustrate below issues we believe management will in future, need to communicate in details to stakeholders shareholders, investment analysts, rating agencies, and the regulator. We believe potential and current shareholders will wish to be appraised as in other industries of how the business `adds up and what efforts are being put in place to ensure value/worth is not eroded. Put another way, insurers will have to demonstrate how they manage risk! Risk Management In our view, risk management will be a major contributor to the successful future of the insurance sector. Management will need to constantly review the adequacy of the premium rates, underwriting policies and (Know Your Client) KYC enquiries, reassurance programmes, investment policy, operating systems, processes, people etc. We believe stakeholders will require companies to establish risk management principles to identify the sources of business risk and install processes that will mitigate the risks jeopardising business objectives and Shareholders worth. We give below some examples of risk and mitigating actions (Schroeck, 2002). Type of Risk Example Some Mitigating Actions Market Risk An adverse change in asset market values without a corresponding change in liability values. Have a formal asset distribution policy, define sartorial distribution, and stock selection criteria. Match assets to liability profile. Interest Risk A change in the discount rate adopted in calculating liability values without matching changes in asset values. Prudential Reserving Approaches Insurance Risk An increase in mortality experience (e.g. group life). An increase in life expectancy (annuity business). Increase/decrease policy lapses etc. Anticipate potential changes through prudential reserving Operational Risk Inadequate premiums ICT failures Failure to reassure Inadequate staff Review Rates Document ICT processes, external backup sites, maintenance etc Review administrative processes Train staff, review recruiting and remuneration policies Credit Risk Failure of reassure Failure of debtors (debt security/large broker/agent) Have operational and financial criteria for choosing reassures and debt securities Liquidity Risk Failure to meet obligations due to cash flow strains or having illiquid assets. Asset liability matching Secure adequate banking arrangements etc. Embedded Value The change in end year reserves directly impacts the declared underwriting profits and by implication the overall business profits, dividends and shareholders worth. We anticipate that reserve calculation methods and their adequacy will in future need to be justified to stakeholders. The calculation methods will have to be scientific, independent of management and be in line with best global practice (Carey, 2006). As in other territories we perceive stakeholders will require Shareholders Worth to be expressed as the Embedded Value (EV), which essentially is The Adjusted Net Asset Value (NAV) balance sheet NAV if assets and liabilities are expressed at their fair values The estimated future profits to shareholders from the business currently in force. Typically, the EV will exceed the normally reported NAV. Companies are beginning to privately calculate their EVs in Nigeria and we expect that as insurance market analysts and financial consultants get increasingly involved in the insurance sector, demands for companies published EVs will increase as is happening in Asia, Australia, Europe and the Americas. Economic Capital We foresee businesses/managers in the near future enquiring of the amount of Capital actually needed to be dedicated to insurance business to reflect the projected business mix and growth over a review period (typically 1 year). This capital, called the Economic Capital, will reflect the entitys risk appetite and will, for instance, differ for identical companies with different reassurance programs (Schztz, 1997). In Nigeria, where capital requirements are presently high in comparison to technical liabilities the concept of economic capital will immediately be useful for the investment management of the Shareholders Funds. A relatively risk free approach could be adopted for the investment of the economic capital whilst a more risky approach may be adopted for the balance of funds, reflecting the degree of the enterprises risk adverseness. We anticipate the latter half of 2008 and, particularly 2009 to herald significant changes in the insurance sector (Onosode, 1993). Management making significant investments in operating systems and people Active new Product development efforts More educative and aggressive marketing efforts Significant business expansions occurring in 2009 A relative influx of foreign potential core investors Improved financial reporting, especially a shift to EV reporting Increased regulatory alertness/requirements. The current rules based approach to capitalisation and reserves may yield to a principles based approach. It has been estimate that 2010 will be the year of the `big bang with Life, health and household insurance premium incomes exceeding 1% GDP and at least three (3) insurance companies recognised as being leaders in Nigerias financial services sector. Reforms in the Insurance Industry The Government of Nigeria in view of keeping the confidence of common man and organization in the market and to enhance the insurance industry has taken some reformative action . it include the process of recapitalisation and consolidation. As to remain competitive in the global world these are desperately required. After the reform new bigger and stronger player come into the existence which can fight in a global environment with the other foreign companies. Post reform the Nigeria insurance industry works on a small marginal scale. Which restricted the growth of the market and the organization as the profitability is low and premiums are high. It can specially be referred in the context of oil and energy business. The government feel there is immense potential in the field of insurance industry if some corrective measure to be taken. The absence of private and public developmental infrastructure also hindered the growth of insurance industry in Nigeria. There is a vision 2020 determined by the Nigerian government for insurance sector which shows the future of the market and some prediction has been made about the industry. The vision was focused towards the choices available among the emerging market. To be count in the top 20 insurance market in the world Nigerian insurance market is require to be attain more efficiency and safety measure, more transparent and a higher market penetration and capacity. Keeping the view of vision 2020 the reforms in the insurance industry being developed so that the bigger and stronger player can emerge which can in turn fight with the global competition and trends. While there scale of operation will be large and can bear the any uncertainty in more professional way (Mehta, 1990). Okechukwu Chukwulozie, talked on the reforms in insurance industry that One of the major task faced by the NAICOM is to the increase the market charming of the share of insurance companies. So that the individual and corporate house can feel the insurance companies share more attractive than others. According to him it is prerequisite for NAICOM to increase the awareness in the public about the insurance companies, to publish the great financial performance attained by the insurance companies. It will lead to the confidence building in the public hence will lead to the purchase of insurance and their companies shares. Later on it will have ripple effect. He emphasized on the reformative active action has to settled as soon as possible as companies have to accept the reality and look for a bigger picture by compromising on their personal objectives for short term. According to him Oil and Gas insurance business is the most important for Nigerian Insurance Industry. Though the industry has made a remarkable progress in this regard but it still require the co-operation from the NNPC. According to Okechukwu Chukwulozie the future of insurance industry in Nigeria is very bright and it looks more promising as the government enforce 45 % local content policy in Oil and Gas industry. Also the insurance companies are having their own committee which are run by the representative of the relevant stakeholders which look after the interest of all working projects. With the government enforcement of 45 % local content policy the insurance industry is expected to boost up by over USD 400 million in the coming two year. This phenomenon wills not just only the profit for the coming years but also throw up new challenges and opportunities. Some more researched and calculative action has to be taken in lieu of strengthening of insurance industry of Nigeria. (Edwin, 2005). The task in front of insurance industry is to build up a Sovereign Trust franchise at local and international level. A more strategic partnership is requiring with the West African Sub-region. The privatization or partial privatization is welcomed for ill unites and non-performing erstwhile public companies. Nigeria is a rapidly developing economy is experiencing the entry of foreign companies in the domestic market in telecommunication, banking, energy and petroleum which will further fuel the competition. Economic Capital Shareholders Real Worth Reported Profits + Dividend Policy True Underwriting Profits Technical Reserves (Calculation Method) Risk Management Policies