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Old Mutual Nigeria
By Bismarck Rewane
CEO, Financial Derivatives Company Ltd.
June 19, 2014
Relevance of Financial Inclusion to Economic
Growth & Financial Stability
+ Outline
Nigerian Insurance Industry: current state
assessment
Concept definition
Financial inclusion in Nigeria
Peer country comparison
What to expect in Q3’& Q414
+ Nigerian Insurance Industry
Current State Assessment
+ Overview of the Nigerian Financial
System Size of the Nigerian banking system in terms of
assets: N24.3trn ($150bn)
Recovered from the 2008 financial crisis
Average CAR of 16.7% is higher than the
global threshold of 10%
Average tier 1 capital to risk weighted assets is
15.4%
Industry NPL ratio is down to 3.8% as at March
2014, from 34.5% Nov 2010
+
CBN’s payment system initiatives have led to
reduction in transaction costs and currency
management
Payment terminal aggregator (PTA) and
standardized T+1 settlement
Nationwide cashless to commence July 1
Mobile money initiative has continued to
enhance financial inclusion
Number of unbanked public down to 37.9% in
2013 from 46.3% in 2010
Overview of the Nigerian Financial
System
+ Nigerian Insurance Industry
Growth rate of 15.18%
Contribution to GDP: 0.56%
A total of 59 insurance firms till date
Regulated by the national insurance commission (NAICOM)
Total premium of N200.40bn and N232.70bn in 2010 and 2011 respectively
Total assets of N5.85bn and N6.21bn in 2010 and 2011 respectively
Only 1.5% of the adult population (about 1.3m adults) have an insurance policy
Vehicle insurance has the highest share quota
+ Nigerian Insurance Industry
Type Category Number
Insurance Company Life 16
Non-Life 30
Composite 11
Re-insurance 2
59
Insurance practitioners Underwriters 57
Brokers 577
Loss Adjusters 54
Agents 1900
2588
+ Ghana Insurance Industry
Type Category Number
Insurance Company Life 19
Non-Life 26
Re-insurance 2
59
Insurance practitioners Re-insurance broker 1
Brokers 63
Loss Adjusters 1
Agents 4537
2588
+ Nigerian Insurance Industry
Positive correlation between gross fixed investment
and total insurable assets
Insurance industry usually outperforms real GDP in
most economies
Leading economic indicator; as premiums grow,
investment increases
+
Insurance in SSA Region
+ Insurance Industry in South Africa
Insurance activities coordinated by South
African Insurance Association (SAIA)
Comprising of SAMIA, AMUSA, IGF and SANP
Largest insurance market in SSA
Total premium of $52.4bn
79.3% originates from life insurance
A total 12.9% of GDP
A figure which exceeds insurance penetration in
some European countries.
+ Insurance Industry in Ghana
1989- Establishment of the National Insurance
Commission (NIC)
Now operates under the 2006 Insurance Act
(Act 724)
To ensure effective administration, supervision,
regulation and control of Insurance business in
Ghana.
+ Industry performance
A total of 47 insurance firms till date Gross Premium in Life insurance of 367m Ghana
cedi and 492m Ghana cedis in 2010 and 2011 respectively. Growth rate of 34%
Gross premium in non-Life insurance of 582m Ghana cedis and 651m Ghana cedis in 2010 and 2011 respectively. Growth rate of 12%
A total of 1143m Ghana cedis equals 1% contribution to GDP
A 5% estimated share of population using insurance
+ Insurance Industry in Kenya
Ranked 3rd out of 16 countries in 2010.
According to World Bank’s assessment of the
economic and governance reforms
The Kenyan insurance industry grew in written
premium value at a CAGR of 18.6% between
2008-2012.
The growth was mainly contributed by the non-
life insurance segment
+ Insurance Industry in Kenya
Non-life insurance accounted for 50.9% of total
Kenyan insurance written premiums in 2012
Ongoing reforms and stable economic growth
and expanding distribution channels will
support growth in next 3-5 years
Insurance companies have used technology,
introducing a platform called M-BIMA by CIC
Insurance
+ Insurance Industry in Kenya
Registered a Kenya shillings of 100bn of Gross
Direct premiums in 2011.
A growth of 16% p.a average over the last 5
years.
Comprises of a total 45 insurance companies.
Competition is strong and therefore clear
market positioning is essential.
+
Nigerian Economy
+ Nigerian Economy
Nigeria is a mineral rich and commodity
dependent economy
Nominal GDP of $510bn, largest economy in
Africa
26th largest in the world
Now a medium income country
Not eligible for certain categories of
international development assistance
+ Nigerian Economy
GDP growth rate of 6%
Potential GDP/Real GDP divergence which was
as high as 15% in 2010 is now 4%
Suboptimal aggregate output due to structural
constraints
Factor productivity growth of 5.4% compared to
labour productivity of 3.3%
+ Nigerian Economy
Misery index of 48%
∑(inflation + lending rate + unemployment- GDP
growth per capita)
79.4
61.6
48
38.1 37.4
37.3
25.6 19.9
18.2 16.8
13.9 12.9 11 9.08
7.9 7.88
5.4
0
10
20
30
40
50
60
70
80
90
Misery index
Source: CBN
Nigeria has the 3rd highest misery index
+ Financial Inclusion in Nigeria
+ What is Financial Inclusion?
Roland Berger Financial inclusion is a state in which adults
have easy access to a full suite of quality formal financial products, provided at an affordable cost
These products include:
Payments
Savings
Credit
Insurance
Financial literacy is the understanding of financial terms and products
+ Characteristics of Financial
Inclusion Easily accessible financial services
Complete range of financial products, e.g
payment systems, insurance
Financial products must be of acceptable
standard
Affordability
+ Determinants of Financial Inclusion
in Nigeria
Individual attributes
• Whether to save or not
• Level of education
• Connectivity( mobile phone ownership, internet)
Household attributes
• Social economic status
Community attributes
• Proximity of nearest mobile phone kiosk
• Informal savings institutions in the community
+ Facts & Figures
Young and growing population
of approx. 170m people
Level of urbanization as a % of
total population: 52.1%
Nigeria’s population growth
rate is 2.6%(4m)
Similar to the rate of increase of
the unbanked adults
+ Facts & Figures
Total adult population is 87.9m
51.0% of the adult population
are under 33 years old
35.5% of rural adults are farmers
Mobile phone ownership is
84.9% in urban areas and 55.6%
in rural areas
8.1% of adults have some form
of tertiary education
+ Facts & Figures
Ratio of banked to unbanked- 32.5:67.5
79% of the unbanked are rural dwellers
Financially included: excluded- 60.3/39.7
37% of adult population are financially included
Nigeria lags behind South Africa at 68%, Kenya: 41%
+
+
Source: Roland Berger
+ Financial Access- Peer Country
Comparison
Nigeria lags behind South Africa, Namibia and Botswana in terms of population formally included
Kenya has a large percentage of adults served by a “formal other” institution
Due to M-PESA
East African nations have the strongest informal sectors
Source: EFIna
+ Growth in Financial Inclusion
0
5
10
15
20
25
30
35
40
45
50
Banked Formal other Informal only Financially
excluded
2008
2010
2012
Growth in Level of Financial
Inclusion (N’m)
Source: EFIna, FDC Research
Between 208 and
2012, proportion of
adults formally
included increased to
43% from 23.6%
Proportion of adults
financially served
increased to 60.3%
from 47.5%
Number of adults
financially excluded
down by 10.5m
+
+
Gradual increase in the
use of PoS terminals due
to cashless policy
Ratio of cash to cards now
70:30
+ Use of Microfinance Banks (MFBs)
5.2% of the adult population have a MFB account Male: 56.4%
Female: 43.6%
The most commonly used MFB is a savings account
0
10
20
30
40
50
60
70
80
90
% of adults who have a mfb product
% of adults who have a mfb
product Source: EFIna, FDC
Research
+ Penetration of Insurance Products
1.5% of the adult population have
insurance
Vehicle insurance has the highest
volume
Areas where risks are
experienced and would imply a
need for insurance have a low
share
Life assurance
Medical/critical illness cover
Livestock / agriculture insurance
0
10
20
30
40
50
60
% of those who currently
have insurance
% of those who
currently have
insurance
EFIna, FDC Research
+ Mobile Money
5.5% of the adult population are aware of mobile
money operators
Only 0.5% are registered with any mobile money
operator
Mobile money is mostly used to purchase airtime
57.8
49.2
38.2
30.5
5.3
0
10
20
30
40
50
60
70
Airtime
recharge
Sending
money
Receiving
money
Paying bills Others
% of registered mobile money
users
Source: EFIna, FDC Research
+ Change in Number of Users per
Financial Product Number of banked adults increased by 56.28%
Number of adults with MFB account recorded the
highest increase of 820%
Number of adults with insurance recorded least growth
of 30%, after dipping marginally to 800,000users in
2010
No mobile banking in 2008 and 2010
18.3
0.5 1 0
25.4
3.2
0.8 0
28.6
4.6
1.3 0.4
0
5
10
15
20
25
30
35
Banked (DMBs) MFB Insurance Mobile banking
2008
2010
2012
Source: EFIna, FDC Research
+ Constraints to Increasing Financial
Inclusion Distance to banks
The average distance to a branch is over 10km
Low financial literacy
Affordability: cost of ATM cards, minimum
balances
Proper KYC documentations
+ Financial Inclusion and
Economy
Case Study: Kenya
+ Financial Inclusion and Economy
A case of the Kenya
2006 2013
Population (mn) 36.76 44.2
GDP ($bn) 22.5 37.23
GDP Growth Rate (%) 6.3 4.3
Use of more than one financial service (% of
population) 19 46
Volume of Transactions (mn) - 56
Value of Transactions (bn) - 142
Mobile Money Agents - 96319
Mobile Money Customers (mn) - 23.02
Mobile Money Customers (% of adult population) - 74
+ Financial Inclusion and Economy
A case of the Kenya Kenya’s financial inclusion landscape experienced
a considerable and positive transformation during
the 2006-2013 period
Its financial system increasingly offered diverse
financial services and products
Covering a broader geographical area that extends
beyond the nation’s borders
Kenya is the second economy in Africa to achieve
financial inclusion
After South Africa
+ Financial Inclusion and Economy
A case of the Kenya
M-PESA is a mobile money transfer service supported
by Safaricom
Kenya’s largest mobile network operator
Over 52% of the country’s 44.2mn people use M-PESA
74% of the adult population
Average value per transaction was US$29.3 in 2013
A quarter of Kenya’s GDP runs through M-PESA
+ Financial Inclusion and Economy
A case of the Kenya
Value of mobile money transactions recorded in April 2013 was $1.68bn
Volume: 56m
Mobile money agents rose to 96,319 from zero in 2006
M-Shwari, launched in 2012 allows M-PESA subscribers save and borrow money
M-KESHO: mobile banking with micro-credit and savings
The simplicity of the service makes it attractive to the illiterate and semi-illiterate
People who would naturally not access bank services
+ Financial Inclusion and Economy
A case of the Kenya – M-PESA and Insurance
97% of Kenyans do not have access to health insurance
or any insurance
Due to concentration of service at the top
Lack of service to the poor is also a contributory factor
In 2012/13, Vodafone introduced new M-Pesa services
Insurance
Savings and loans
Provides supporting insurance for smallholder farmers
against crop failure
Extended M-PESA insurance (funeral insurance) to
Tanzania
Registered over 170,000 customers in its first month
+ Financial Inclusion and Economy
A case of the Kenya – M-PESA and Insurance
Safaricom launched M-Pesa health insurance in
January 2014
Aimed at the poor, literate and semi literate
Insurance service provided at an annual premium of
$137.07 for cover worth $3,312.40
M-Pesa now used to improve people’s lives in the
areas of agriculture, health & Education
+ What to Expect in Q3-Q4
2014
+ Leading Economic Indicators (LEI’s)Q3-Q4
H1’14 Q3’14 Q4’14
GDP (US$bn)
GDP Growth Rate (%) 6.9* 7.3* 7.1*
Inflation (average %) 8.00 8.28-9* 9-10%*
MPR Average (%) 12 12 12
Stock of FDI (US$bn) 90.3 86.4** 86.4**
Income per Capita (US$) 1,624 1,698 1,855
Exchange Rate - Interbank (N:US$) (Average) 162.55 165.0 167
Private Consumption 41.3 54.1 54.1
Gross fixed investment 81.83 82.7 82.7
Source: CBN, NBS, EIU FDC Research * = FDC’s Estimate ** = EIU Forecast
+ What to Expect - Output
Real GDP expected to remain robust
2014 GDP growth rate: 6% in 2014
Non oil sector to remain key driver of growth, driven
by services, agriculture, building and construction
Government revenue is subject to oil market dynamics
Oil prices are subject to geopolitical tensions in the
middle east, oil shale boom, enforcement of OPEC quota
Crude output is subject to leakages, sabotage
Growth in private consumption is expected to increase
to 61.5% of GDP
+ What to Expect - Inflation
Inflationary pressures will increase as
electioneering intensifies but hyper inflation
not expected
Anticipated inflation of 10-11% by year end
CBN’s target is 6-9%
Impact likely to be muted in Q3 due to
anticipated agricultural output
+ What to Expect - Inflation
Risks from other sources remain
Implementation of the new automotive policy
Fiscal overdrive from security spending and
election campaigns
Resurgence of currency pressures may translate
into higher consumer prices
+ CPI Likely to Increase in June
Again
8.0% 8.0% 7.7% 7.8% 7.9% 8.0%
10.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 *June-14
FDC's Headline Inflation Projection
* Impact of the New Automotive Policy, Depreciation of the naira and increase
in money supply
+ Why
Growing Inflationary Pressure
FDC Research
Event Impact Time Frame
Naira Weakness High: 3-5% Impact more in July
Increased Cost of Vehicles High: (40%) Impact more in July
Disbursement of Capital
Vote (fiscal overdrive) High Immediate
Power Cost Medium: 5-10% Immediate
Steady Growth in Money
Supply Medium: 1.5-2% 90 days
Wage Pressure None -
+ Possible Policy Response
3 possible scenarios
Use of administrative tools before next MPC
meeting
OMO auctions, T/Bills & CRR debits can be used to
stem inflation
MPC unlikely to change stance barring any
significant movement
In consumer prices and the macro environment
OR
Tighten monetary policy further if current
macroeconomic environment worsen
+ What to Expect - Markets
Money market rates will continue to move in
tandem with liquidity
Hovering around the 200bps symmetric
corridor of the MPR
No major exchange rate adjustment expected
before elections
+ What to Expect- Stock Market
Market rally to continue
Increasing by more than 3%
MPC change in monetary policy stance poses risk to banking sector stocks
Possible correction in subsequent quarters
No new listings expected
Seplat and Caverton listings may influence listings by year’s end
Pension assets now about N4.3 trillion
Increased allocation to equities may inflate the Nigerian bourse
+
Market recovery to persist through Q3
Increasing as much as 8%
Further gains in Q3
Positive Q2 results to drive investor optimism
Possible “Emefiele boost” to financial sector
U.S Fed Taper already priced into global equities
Impact on Nigerian equities has been subdued
What to Expect- Stock Market
+ What to Expect - Policy
New Governor to chair his first MPC meeting in July
The MPC composition remains intact &
institutionalized
The level of discourse will be unadulterated
The line in the sand for currency adjustment will be
approximately $34bn
All steps and comments will be subjected to
competitor and investor scrutiny
Evident in market response to his maiden press
conference
+ What to Expect - Policy
There will be greater coordination between the
CBN & Finance Ministry
MPC unlikely to change monetary policy stance
barring any significant movement
In consumer prices and the macro environment
Accommodative stance expected after the 2015
elections
Committee to continue the use of administrative tools
to support monetary tools
+ What to Expect - Policy
Electronic payments will increase transaction
flows as cashless policy goes nationwide
Increased financial inclusion expected
No subsidy reduction/removal expected
until after the 2015 elections
+
Thank you
