Falling rate confirms Fitch Ratings prediction for insurance market
A cross the table rates are declining with no immediate solution in sight. It has looked like a blame game with no one being punished for violation or as unethical practice. Those who hold larger share of the market believe it is not a criminal or unethical practice to charge lower rates as long as it is profitable for you and you have the capacity to pay claims when they arise. Meaning that, it is a function of your ability to manage your risks, which of course it’s been said is unique to each entity (organisation).
The Nigerian insurers Association (NIA) is concerned about it very seriously because of its overall impact on performance and growth of the industry. While the regulator, the National Insurance Commission (NAICOM) also feels concerned but it’s handicapped to make it a regulation, understanding the economics of demand and supply. Where therefore, both bodies intends to carry this battle to is what the observers are eagerly waiting to see?.
But the impact of economic stress being faced by businesses, though not unique to Nigeria underscores further reason for rates decline in the global market, thus justifying Fitch Ratings prediction of a general rate decline in the current year in its report on insurance in 2017.
Fitch Rating in the report set a negative forecast for the year ahead in its 2017 insurance industry outlook report, predicting a continued decline of premium rates, with soft pricing prevailing in the global reinsurance market.
The soft pricing, according to the report, is driven by a continued over demand of capital, sluggish reinsurance purchasing, and several years of below-average catastrophe claims, despite last year seeing catastrophe losses reach their highest level since 2012.
Profitability is predicted to be weakened, with combined ratios expected to deteriorate down to 92 per cent from 91.5 per cent in 2016 as premium rates and investment yields decline, but the agency believes most reinsurers are expected to maintain credit metrics and ratings despite the challenges. “Most ratings therefore have stable outlooks. Some smaller reinsurers with limited business diversification could face negative rating actions if prices drop much further, particularly as pricing has already fallen close to the cost of capital,” said Fitch Ratings.
Increased share buy-backs, special dividends and M&A (Mergers & Acquisitions) activities are on the cards for the year ahead, as soft market conditions make organic growth increasingly challenging, and Fitch Ratings noted that the trend of share repurchases would continue.
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