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Impact Of Reinsurance On The Growth Of Insurance Business (A Study For Nigeria Reinsurance Corporation Plc).

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ABSTRACT

This study is aimed at investigating the effects of reinsurance on the growth of insurance business (a study for Nigeria Reinsurance corporation PLC). It was a descriptive research design. A stratified random sampling technique to select 150 respondents that partaking in Nigeria Reinsurance corporation PLC was used for this study. The population of the study will include all insurance companies registered with the National Insurance Commission (NAICOM) operating in Imo State. The primary data for this study will be collected using a structured questionnaire. The data will be collected through the administration of the structured questionnaire to the selected respondents using the 4-point Likert scale. The data collected from the field work were analyzed using mean scores. From the result obtained, it revealed that the respondents are aware of Risk Management,Financial Stability, Capacity Building, Market and Competitiveness. The Impact of reinsurance on the growth of insurance business in Nigeria include Risk Management and Financial Stability, Enhanced Capacity and Underwriting Ability, Product Innovation and Market Competitiveness and Confidence and Trust Building. The Problems of reinsurance on the growth of insurance business in Nigeria include Lack of Proper Risk Assessment and Data Availability, Regulatory and Compliance Requirements, Overreliance on Reinsurance and  High Cost of Reinsurance while Strategies that encourage reinsurance include Promoting Risk Management Practices, Enhancing Data and Information Sharing, Government Support and Incentives and Developing Local Reinsurance Capacity. The results indicate a high level of awareness regarding the usage of risk management, financial stability, capacity building, and market competitiveness in relation to reinsurance. This suggests that industry stakeholders are cognizant of the importance of reinsurance for the growth and development of the insurance sector.

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

This chapter is the overview of this study. It is presented under the following subheading: background to the study, statement of the problem, scope of the study, objectives of the study, research hypothesis, significance of the study, research question and limitations of the study.

Reinsurance plays a vital role in the growth and development of the insurance industry worldwide. In Nigeria, the role of reinsurance cannot be overemphasized, especially in the light of the increasing demand for insurance products and services. Nigeria Reinsurance Corporation (Nigeria Re) is the country’s sole national reinsurance company, and it has played a significant role in the development of the insurance industry (Agiobenebo, 2020).

The development of insurance industry around the world has been a matter of concern among researchers. In today’s complex and catastrophe-plagued business environment, the judicious use of risk mitigation strategies in insurance and reinsurance in particular, is vital to the sustainable financial viability of insurance corporations(Taylor et al., 2019). Being essentially insurance purchased by an insurer from a reinsurer, reinsurance has served as a time-honored risk management activity on which an insurer can capitalize to achieve manifold mutually complementary business objectives. From a risk management perspective, reinsurance provides a powerful tool for an insurer to stabilize its risk exposure by ceding unbearable catastrophic losses to a reinsurer, which is generally more geographically diversified than an insurer. As a result, the amount of risk and the present formal increase in the capital requirement faced by the insurer can be maintained at a level that the insurer consider appropriate. Meanwhile, reinsurance bolsters the underwriting capacity of the insurer and, in turn, empowers the insurer to assume losses from its policyholders that it is otherwise incapable of underwriting (Ambrose, 2020).

Risks have ever been present since the existence of man and if not properly mitigated may lead to disruption of lives, property, earnings and businesses. The dynamism associated with the concept of risk has many disciplines like economics, finance; accounting, mathematics, statistics, business management and the like define it with no consensus. Interestingly, from insurance perspective, there seems to be no convergent view among scholars as to what constitutes risk (Olufemi, 2019). He furthers state that, despite this divergent view, common feature shared by the authors is that exposure to risk is created whenever an act gives rise to possibility of loss (Banjo, 2019). However, Bressan (2020) asserts that, one of the main reasons why insurance companies purchase reinsurance coverage is always to protect themselves against the risks of losses above certain thresholds which can sometimes be catastrophic. Although reinsurance is a major risk and capital management tool available to insurers, it seems to be hardly known outside the insurance sector like banking, and some other financial industry sectors. The empirical evidence seen so far suggests that the purchase of reinsurance introduces substantial changes to several characteristics of insurers, besides their risk profile. Like, the study carried out by Dansu and Obalola (2018), they are of the opinion that, to analyze the effect on both profit and losses and capital requirement of alternative reinsurance strategies or programs, that, two classical proportional and nonproportional treaties were introduced by extending classical relations, where they derive moments of combined ratios by considering both the cases of Quota-Share proportional treaty (QS) and Excess of Loss (XL) treaties. According to the Quota-Share, they analytically describe how alternative methodologies to identify ceding commissions have an effect on the moments of the probability distribution of combined ratios and on the capital requirements for Premium Risk. Indeed, in the management practice, the insurer must usually choose among different efficient reinsurance strategies, taking into account either profitability sacrifice or capital saving (Aduloju and Ajemunigbohun, 2017).

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According to Osuagwu et al. (2021), reinsurance helps to mitigate the risks that insurance companies face in their operations, which, in turn, boosts their confidence and ability to underwrite more risks. This leads to an increase in premium income and ultimately, the growth of the insurance industry. In Nigeria, the role of Nigeria Re in providing reinsurance solutions to insurance companies cannot be ignored, as it has been pivotal in the growth of the industry. Furthermore, Amaeshi and Osuji (2019) state that reinsurance helps to increase the capacity of insurance companies to underwrite larger risks, which they would not have been able to do on their own. This leads to an increase in the level of risk retention, which, in turn, improves the financial stability of the insurance industry.

They also carried out a case study based on two different multi-line Non-Life insurers allows the comparison of the effect of wide strategies on both profitability and allocated capital, which makes them to be able to come up with the conclusion that, different reinsurance coversprovided by the real market makes the insurance companies able to identify the most appropriate strategic planning which can help serve as a very key tool to enhance their growth and development.Also, Augustine and Lukmon (2019) in their study carried out on reinsurance and the performance of the ceding company, they are of the conclusion that, there is a strong positive relationship between reinsurance capacity and gross written premium of insurance companies in Nigeria. Reinsurance provides an insurance company with capacity to compete against other insurance companies in a market where size would be a significant virtue, they further assert that, Reinsurance provides an insurance company with capacity to compete against other insurance companies in a market where size would be a significant virtue. The size of a company is an attraction to insurance intermediaries in placing their clients’ insurance business.

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The development of Insurance and reinsurance has been slow over the years compared to other financial sectors in Nigeria. This is one of the problem Nigerian insurance industries has been facing, as a result of the previous past experience they have been facing with the insuring public (Insured) based on the high number of claimratio, usually arising from the lack of proper underwriting procedures from some insurers and not having adequate reinsurance programs to protect them against any kind of loss that might be catastrophic in nature or large amount of claim which usually leads to the liquidation of most insurance in the past. According to Gian, Nino, Savelli, Diego, and Zappa (2020), he said that, even with the existence of reinsurance in Nigeria, most of the profitable insurance businesses from the multinational companies in Nigeria, the percentage of the risks that are being retained by the whole of the Nigerian insurance companies are not up to 10%.

1.2     Statement of Problem

Despite the significance of reinsurance in the insurance industry, there is a lack of comprehensive understanding regarding its actual impact on the growth and development of the Nigerian insurance market. Limited research has been conducted to examine the specific contributions of reinsurance to the overall growth, stability, and performance of the Nigerian insurance sector. This knowledge gap hinders policymakers, industry practitioners, and stakeholders from formulating effective strategies and policies to leverage the potential benefits of reinsurance for the sustainable growth of the Nigerian insurance industry. Therefore, there is a need for a systematic investigation into the impact of reinsurance on the growth of the Nigerian insurance industry, which will provide valuable insights for enhancing the sector’s competitiveness, financial stability, and capacity to absorb and manage risks. This study is aimed to evaluate the impact of reinsurance on the growth of insurance business in Nigeria-A case for Nigeria Reinsurance corporation PLC.

 1.3    Objectives of the Study

The aim of this study is to assess the effect of reinsurance on the growth of the Nigerian insurance industry, with a focus on the Nigeria Reinsurance Corporation PLC. The specific objectives of the study are as follows:

  1. To examine the awareness of reinsurance on the growth of insurance business in Nigeria.
  2. To evaluate the impact of reinsurance on the growth of insurance business in Nigeria.
  • To investigate the problems of reinsurance on the growth of insurance business in Nigeria.
  1. To examine the strategies that encourage reinsurance on the growth of insurance business in Nigeria.

1.4     Research Questions

The following research questions will guide this study:

  1. What is the awareness of reinsurance on the growth of insurance business in Nigeria?
  2. What is the impact of reinsurance on the growth of insurance business in Nigeria?
  • What is the problems of reinsurance on the growth of insurance business in Nigeria?
  1. What are the strategies that encourage reinsurance on the growth of insurance business in Nigeria?

1.5     Research Hypothesis

Null Hypothesis (H0):

  1. The impact of reinsurance on the growth of insurance business in Nigeria is not significant.

iii. Reinsurance does not pose significant problems on the growth of insurance business in Nigeria.

Alternative Hypothesis (H1):

  1. The impact of reinsurance on the growth of insurance business in Nigeria is significant.

iii. Reinsurance poses significant problems on the growth of insurance business in Nigeria.

1.6     Significance of Study

The findings of the study can provide insurance companies in Nigeria with insights into the importance of reinsurance in managing risks and enhancing their financial stability. It can help them develop effective reinsurance strategies and make informed decisions to optimize their growth potential.

The study can assist reinsurers operating in the Nigerian market in understanding the specific needs and challenges of the local insurance industry. It can guide them in tailoring their reinsurance products and services to meet the requirements of Nigerian insurance companies, thus fostering mutually beneficial partnerships.

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The study can provide regulators and government authorities with a comprehensive understanding of the role of reinsurance in the growth and stability of the Nigerian insurance sector. The insights gained can aid in formulating appropriate policies and regulations to foster a conducive environment for reinsurance activities and promote industry development.

The study can serve as a valuable resource for academic institutions and researchers interested in exploring the impact of reinsurance on the growth of the insurance industry in Nigeria. It can contribute to the existing body of knowledge, stimulate further research, and facilitate discussions on reinsurance-related topics.

The study’s findings can inform investors and financial institutions about the potential benefits and risks associated with investing in the Nigerian insurance industry. It can provide insights into the role of reinsurance in mitigating risks and enhancing the overall growth prospects of insurance companies, thereby influencing investment decisions.

The study indirectly benefits policyholders and consumers by highlighting the significance of reinsurance in ensuring the financial stability and reliability of insurance companies.

1.7     Scope of the study

The scope of the study on the “effects of reinsurance on the growth of the Nigerian insurance industry. A case for Nigeria Reinsurance corporation PLC” includes investigating reinsurance practices, analyzing growth indicators and financial performance, examining risk management, evaluating the regulatory framework, and gathering industry perspectives within the context of the Nigerian insurance industry.

1.8     Limitations of the Study

The study may face limitations due to the availability of relevant and comprehensive data on reinsurance and the growth of the Nigerian insurance industry. The lack of sufficient data or incomplete data may restrict the depth of analysis and limit the generalizability of the findings.

The study’s findings may be influenced by the sample size and its representativeness. If the sample size is small or not adequately representative of the entire population of stakeholders in the Nigerian insurance industry, the findings may not accurately reflect the perspectives and experiences of all stakeholders.

Conducting a comprehensive study on the impact of reinsurance on the growth of the Nigerian insurance industry may be limited by time constraints. The study may not have sufficient time to cover all relevant aspects and factors that contribute to the growth of the industry.

The growth of the Nigerian insurance industry is influenced by various external factors such as economic conditions, government policies, and market dynamics. These external factors can change over time and may impact the study’s findings, making it challenging to establish a direct causal relationship between reinsurance and industry growth.

The study may rely on self-reported data obtained through surveys or interviews. This reliance on subjective responses introduces the possibility of response bias, where participants may provide inaccurate or biased information, affecting the validity and reliability of the study’s findings.

The study’s findings may be limited to the specific context of the Nigerian insurance industry and may not be directly generalizable to other countries or regions. The unique characteristics and dynamics of the Nigerian market may limit the broader applicability of the study’s results.

The study’s methodology, such as the choice of research design, data collection methods, and analytical techniques, may have inherent limitations. These limitations could impact the accuracy and robustness of the study’s findings and conclusions.


Pages:  62

Category: Project

Format:  Word & PDF               

Chapters: 1-5                                          

Source: Imsuinfo                            

Material contains Table of Content, Abstract and References.

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