Effect of Nigeria Reinsurance Companies on the Growth of Insurance Business in Nigeria
Chapter One
Objectives of the Study
The main aim of this study is to find out the impact of reinsurance on the financial performance of insurance companies in Nigeria from 2009-2018. Specifically, the focus of the study is based on the following objectives:
- to investigate the relationship between reinsurance and underwriting profit of insurance companies in Nigeria
- to find out the effect of reinsurance on the gross premium income of insurance companies in Nigeria
- to investigate the effect of reinsurance on gross claim payments of insurance companies in Nigeria
CHAPTER TWO
REVIEWED OF RALATED LITERATURE
MEANING AND CONCEPT OF REINSURANCE PROGRAMME
International Association of Insurance Supervisors (IAIS) (2006) sees reinsurance contract as “an arrangement between a party known as (re-insurer) and another party (insurer or cedant) to indemnify against losses on one or more contracts issued by the cedant in exchange for consideration (premium). Reinsurance arrangement covers the liability which an insurer had undertaken under its own contract of insurance with its policyholder (Irukwu, 2001). Also, Park (1799) in his study, discussed that: “re-insurance, as understood by the law of England, may be said to be a contract, which the first insurer enters into, in order to relieve himself from those risks which he has incautiously undertaken, by throwing them upon other underwriters, who are called re-assurers”. Munich (2010) sees reinsurance as transaction whereby one insurance company (the“reinsurer”) agrees to indemnify another insurance company (the “reinsured, “cedant” or “primary company) against all or part of the loss that the latter sustains under a policy or policies that it has issued. For this service, the ceding company pays the reinsurer a premium.
Croatian Insurance Act (2013) sees reinsurance as a major financial activity as it allows direct insurance companies to have higher underwriting capacities to engage in insurance business, provide insurance cover and also to reduce their capital costs by facilitating a wider distribution of risks at worldwide level; furthermore, reinsurance plays a fundamental role in financial performance, since it is an essential element in ensuring the financial soundness and the viability of direct insurance markets as well as the financial system as a whole, because it involves major financial intermediaries and institutional investors.
Outreville (2002) defined reinsurance as “the transfer of liability from the primary insurer, the company that issued the insurance contract, to another insurer, the reinsurance company. The business placed with a reinsurer is called a cession of an insurance company. An insurance company’s policyholders have no right of action against the reinsurer, even though the policyholder is probably the main beneficiary of reinsurance arrangements. According to the author, a reinsurance contract therefore deals only with the original insured event or loss exposure, and the reinsurer is liable only to the ceding insurance company”. Similarly, Wehrhahn (2009) sees reinsurance as “a financial transaction by which risk is transferred (ceded) from an insurance company (cedant) to a reinsurance company (reinsurer) in exchange of a payment (reinsurance premium)”. The author affirmed that reinsurers are professional entities that exclusively deal with the activity of reinsurance.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine effect Of Nigeria Reinsurance Companies On The Growth Of Insurance Business In Nigeria. National Insurance Commission in Abuja form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect Of Nigeria Reinsurance Companies on the Growth Of Insurance Business In Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing effect Of Nigeria Reinsurance Companies On The Growth Of Insurance Business In Nigeria.
Summary
This study was on Effect Of Nigeria Reinsurance Companies On The Growth Of Insurance Business In Nigeria. Three objectives were raised which included: to investigate the relationship between reinsurance and underwriting profit of insurance companies in Nigeria, to find out the effect of reinsurance on gross premium income of insurance companies in Nigeria and to investigate the effect of reinsurance on gross claim payments of insurance companies in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from National Insurance Commission. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Reinsurance is fundamental to insurance companies’ operations. Though, it is very vague because it is a secondary market for insurance risks, it is hardly known outside insurance sector. Reinsurance serves as a capital management tool available to insurance companies, at the same time; insurers substitute it for capital which may allow them hold less capital thereby increasing their insolvency probability. The central point of this argument is focused on the fact that reinsurance dependence might affect insurance companies’ operations on the long run, may be costly, uneconomical, reduce insurer’s efficiency and its inability of sufficient assets to meet its debts, and on the long run erodes the profitability of general insurance companies in Nigeria.
Recommendation
- Insurance companies in Nigeria should increase insurance program, capital, size and clientele base. This may translate to increase in financial capacity, bottom line and experience large pool of homogeneous exposures which will make the outcome more predictable and on the long run demand less of reinsurance protection.
- Insurance companies in Nigeria should put proper reinsurance programs into priority, taking into consideration characteristics of their underwriting documents and consideration factors such as past loss experience, size of risks and frequency of losses. It is important for insurance companies to have optimal retention levels in their risk diversification management basically to ensure favorable financial performance
- Insurance companies diversify their investment portfolios and embrace effectively, reinsurance cover for their businesses in order to diversity their risk
References
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