The Actuarist Analysis Of Nigeria Re-Insurance Management In Development Of The Economy
The aim of this project is to review and evaluate both physical, social and economic effect of the acturist analysis of Nigeria Reinsurance management in development of an economy. Using expo-facto research design and inferential statisticanalysis; the study tested the sign of the significant relationship between dependent variable (profitability (ROA)) and set of independent variable (Net Retention ratio, Net Claim ratio, Net Commission ratio, and Ratio of Ceded Reinsurance). The study used secondary data obtained from financial report of the insurance companies considered for the study, covering a period from 2009 to 2015. Linear regression analysis was used to find out the extent to which independent variable impacted the set of dependent Variables. Correlation was used to find out whether the relationship among the variables to be measured was significant or not. The findings of the study reveal that Net Retention ratio, Net Claim ratio, Net Commission ratio, and Ratio of Ceded Reinsurance are correlated with insurance profitability (ROA), and administrative expenses. The study recommends that that 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.
1.1 Background of the Study
Insurance can simply be defined as a means of spreading risks. This idea started as far back as 1324 by the merchant who are prepared to share their risks of voyage in return for the premium paid. Firstly, it started with cargo owners arrive safely there will be no payment but if not, the insurer will pay double the amount of the premium to the cargo owner.
The development of the idea brought about on increase in the volume of the business which make individual insurer unable to be insured. Then the idea of reinsurance. However, it should be noted that insurance started on an individual basis, but the increasing volume of business in the seventieths century quickly brought about the specialization of some merchant who become the first professional insurer.
Insurance companies as the paramount financial organizations in any surviving economy, have as their prime business and function, the accepting of unwanted risk on behalf of the insuring public. They accept various types of risk in the expectation of being able to generate an adequate return on capital from the premiums charged and indemnify the insured at the point of claims in case of any eventuality of loss . The management of the risks assumed by insurance companies is therefore, fundamental to the success of their operations.
Insurance is defined as a mechanism of transferring risk whereby individuals or corporate organization shift some life uncertainties to other business enterprises’ shoulders and in return pay premiums for the risk transfer (Vaughan & Vaughan, 2007). Insurance as a financial security tool provides economic protection from identified risks occurring or discovered within a specified period.
Insurance companies underwrite the risk of other companies but to mitigate their own risk, these insurance companies use reinsurance (Iqbal, Rehman & Shahzad, 2014). The nature and intensity of these risks are so high that the insurance companies cannot deal with them individually and they need an extra ergonomic hedging cover for the proper handling of such risks (Iqbal &Rehman, 2014). Reinsurance can be regarded as insurance of the insurer (Iqbal et al., 2014). Insurance covers the external risk of the firms in business and therefore utilizes hedging activities like reinsurance and derivative, so that it can reduce the economical or financial risk resulting due to the imperfections of capital market (Cummins & Song, 2008).
Obonyo (2016) scholarly expressed that Insurers offer policies and collect premiums from policyholders with a promise of paying claims in future when the insured events occur. According to the author, the time of settlement of losses for a number of types of insurance may take long periods of time which can stretch to several months or even years after the insured incident or accident occurs.
The bedrock of this study is the mathematical analysis and management of reinsurance in the development of the economy. The risk retention levels within a particular economy will depend on the size and structure of the reinsurance market. Also inflation had a great effect on the demand and management of reinsurance, increase in the potential size of exposure endangered by inflation requires exams to the additional capacity from the reinsurance market.
1.2 Statement of Problem
The reinsurance practices in Nigeria are faced with some problem such as the followings:
- Lack of stable legal and regulating environment
- Poor market environment
- Poor technological environment
- The inadequate capitalization of reinsurance companies in relation to the size of the risk exposures requiring cover
- The shortage of specified underwriting and claim personnel.
- Lack of statistical data which to base premium rate in reinsurance business.
1.3 Objective of the Study
This research work is set to achieve the following objectives.
- To determine the level of qualified personnel in reinsurance industry.
- To evaluate the performance of reinsurance company in Nigeria
- To determine the contribution of the reinsurance industry to the economic development in Nigeria
- To ascertain the role of the acturist in the development of reinsurance business in Nigeria
- To examine reinsurance as the pillar of insurance business and practice in Nigeria.
1.4 Significance of the Study
The study will enable groups, such as insurance companies, reinsurance companies, government and the public at large to be very much aware of the above problem and how to handle them.
When hose problem are dealt with, it will improve effectiveness of reinsurance practice in Nigeria. Government agent as lawmaker can use this work in making rules and regulations guiding insurance companies with those solutions the reinsurance will know how to handle the problem of the industry. They can also use this research to effect and perform adequate roles in the economic development. This research could also contribute to the economic growth of the country.
Lastly, the research will benefit the public as a whole because there would be cordial relationship between reinsurance and insurance companies which will facilitate claim settlement.
1.5 Research Questions
- What are the effects of various Act of decree on the reinsurance industry?
- What is your opinion on reinsurance market in Nigeria interms of development?
- How can quality of service offered by reinsurance companies in Nigeria be assessed?
- Does the actuarist have any role to play in the development of reinsurance business in Nigeria?
- What are the effects of recapitalization exercise in Nigeria reinsurance industry?
1.6 The Scope and Limitation of the Study
The scope of this research work is to know the actuarist analysis of Nigeria reinsurance management in the development of the economy. The researcher will focus on obtaining some information from the continental reinsurance company in Lagos, Abuja and Port-Harcourt but due to time factor and some other setback the researcher will only concentrate on the continental reinsurance office at Okpara Avenue, Enugu State.
As is every research work there are some factor that limit the research work which include:
Time is the greater enemy of man, mostly to a worker and a student researching on the internet, libraries etc.
2. Inadequate Data:
Reinsurance business is not common in Nigeria, much work have not been done on the area.
It is a problem to everybody, to a student and to a worker, research involve a lots of money for photocopying going to the internet and typing cost.
The problem of getting some relevant information from the reinsurance company because some document are classified as confidential.
1.7 Definition of Operational Terms
Reinsurance: It can be defined as insuring a risk that has been already insured. It is the process of whereby primary insurer usually referred to as the ceding company give part of the business which it has accepted, to another insurer called the reinsurance.
A highly specialized mathematician professionally trained in the risk aspect of insurance whose function include the calculation involved in determining proper insurance rates.
This is the process of assessing a risk to know whether to accept or decline and if to accept at what premium conditions.
This is the people that specialize in reinsurance business.
This is the insurance company that accepts risks direct from the insuring public and reinsured all or part of the risk with a reinsurance company.
It is a document issued by reinsurance to a ceding company as an evidence of a complete and finding contract.
May be defined as an agreement that exist between the ceding company and the reinsure, whereby the original company or the ceding company agree to cede while the reinsure agrees to accept all reinsure offered within the available limited of the treaty.
Conclusions and Recommendation
For Net Retention ratio (NRR), the study concludes that it has positive impact on ROA, and is positively correlated with ROA of insurance companies. This study also concludes that Net Claim ratio (NCR) has positive impact on ROA, and is positively correlated with ROA of insurance companies. The study further establishes that Net Commission ratio has negative impact on ROA of insurance companies. Finally, the study averred that Ratio of Ceded Reinsurance has positive impact on ROA of insurance companies, and also is positively correlated with ROA of insurance companies. Therefore, the study concludes that reinsurance proxy by: Net Retention ratio, Net Claim ratio, Net Commission ratio, and Ratio of Ceded Reinsurance
Based on the findings of the study and the conclusions made, the following recommendations were made:
- Insurance companies diversify their investment portfolios and embrace effectively, reinsurance cover for their businesses in order to diversity their risks.
- 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.
- Appropriate effort on the part of the regulatory bodies and stakeholders in the industry should be put in place that will ensure effective underwriting and claims management practices within the industry. As effective underwriting will result to quality business being written at appropriate premiums, which directly affects performance of insurance companies.
- Appropriate effort on the part of the insurance companies and their stakeholders in the industry to properly manage their claims. This will ensure the genuine claims payment, and reduced better loss ratios and ultimately increase underwriting profits
- Insurance companies in Nigeria should ensure that reinsurance commissions earned from reinsurance contracts cover acquisition costs.
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