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AUDIT TAX ADVISORY
Presentation at the Insurance Future Summitby Kunle Elebute, Partner, KPMG
FINANCIAL SERVICES
April 2008
Trends in Global Insurance andPreparing Nigeria for theGlobal Challenge
ADVISORY
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The Place of Insurance
Nigeria on the Global Landscape
Lessons from Other Markets
Overall Market Outlook
Key Success Factors
Outline
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The Place of Insurance1
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Nigeria on the Global Landscape2
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The global insurance market is witnessingsignificant growth
Global GDP grew by 3.9% in real terms during 2006 to$48,342 billion above the 10 year-average of 3%. Emerging
markets expanded by 6.9%, twice as fast as theindustrialised countries.
Worldwide insurance premiums in 2006 were $3,723billion, composed of $2,209 billion in life insurance and
$1,514 billion in non-life, representing growth rates of 5%, 7.7% and 1.5% respectively.
The life market growth rate was the highest since 2000and faster than overall economic growth in most
countries.
Emerging market growth trebled the rate from 2005
Source: Swiss Re Sigma No.4/2007
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0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
World Industrialisedcountries
Emergingmarkets
South and EastAsia
Latin Americaand Caribbean
Central andEastern Europe
Afr ica Middle Eas t andCentral Asia
Growth Rate Average Annual Growth Rate (1999-2005)
RealPremium GrowthRates(%)
Life Business Development ByRegion
0%
5%
10%
15%
20%
World Industrialisedcountries
Emergingmarkets
South and EastAsia
Latin Americaand Caribbean
Central andEastern Europe
A fric a Middle East andCentral Asia
RealPremium GrowthRates(%)
Growth Rate Average Annual Growth Rate (1999-2005)
Non-Life Business Development By Region
Source: Swiss Re Sigma No.4/2007
The global insurance market is witnessingsignificant growth
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From Warehousing risks ToUnderstanding,restructuring & transferring
risksRisks inherited frompolicyholdersRisks pooled and borne byinsurers
Traditional reinsuranceprogramsLarge diversification + good
underwritingLarge amount of capital Securitisation
HedgingDynamic ALM
Management and intermediation of risk
- risks taken from policyholders- risks pooled and structured by
insurers- risks externalised through
reinsurance programs andfinancial markets
Efficient diversificationModerate capital with appropriatecapital management
The Old World The New World
Focus on product returns
without properly measuringrisk/ volatilityIndependent management of assets and liabilitiesAccounting rules notmarked-to-market (MTM)Few rated companiesFew institutional investors
Focus on product risk + value
Integrated ALMAccounting rules approachingMTMMany rated companiesMore institutional investors
Source: Adapted from AXA
From To
The insurance business model itself istransforming
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Key trends driving global insurance marketgrowth
Strong economic growth, underpinned by improved
macroeconomic fundamentals, especially in the emergingmarkets
Favourable regulatory changes and tax incentives
Introduction of mandatory cover in certain areas (motorthird party liability health etc.)
Increased demand for life products- Increased retirement provisions in countries with
ageing population- Government shift from public to private pension
schemes
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Regulatory Influence Universal Banking
Payments: Interswitch, Valucard, ATMC,NIBBS, CSCS,
Other providers: Securicor, ExcelCash Services, Rating Agencies Reformed
Security &Exchange
CommissionNational Insurance
Commission
NationalPension
CommissionCentral Bank of Nigeria/ Nigeria Deposit
Insurance Corporation
Insurance CapitalMarketsBanking
General
Reinsurance
Life
Issuinghouses
Stock brokers
Specialized FIs
Banks Universal,Community,Microfinance
DiscountHouses
Developmentbanks
FinanceCompanies
Pension FundsManagement
Pension FundAdministrators
Pension fundcustodians
InfrastructureProviders
PortfolioManagers
InvestmentAdvisersTrusteesPMIs
The Nigerian FS Industry Structure
The Structure of the Nigerian Financial Services Industry Today
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0
10 ,000
20 ,000
30 ,000
40 ,000
50 ,000
60 ,000
70 ,000
80 ,000
B ra z il Ru s s ia In dia Ch in a S o uthA fr ic a
Nigeria
The Nigerian insurance sector remains globallyinsignificant and underdeveloped
Life Non-Life
Amount (US$Million)
PREMIUMS IN EMERGINGECONOMIES
Source: World Insurance in 2006, Swiss Re, Sigma No.4/2007
< 1% of GDP in 2006
< 5% of banks by totalassets
Employs about 20,0000 staff (the size of
top 3 Nigerian banks)Source: Agusto Industry Estimates;2006
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Nigeria vs the BRIC(S)
Life Premium & Non-Life Volumes; GDP & Population in 2006
Life
(US $ m)
% of Total(Life +
Non-Life)
Worldshare
%
Non-Life
(US $ m)
WorldShare
GDP
(US $ bn)
Population
(m)
InsuranceDensity
(US $)
InsurancePenetration
%
Brazil 13,699 45.1 0.62 16,691 1.10 1,067 188.9 160.9 2.8
Russia 571 2.7 0.03 20,932 1.38 929 142.5 150.9 2.3
India 37,220 86.5 1.68 5,812 0.38 901 1,119.5 38.4 4.8
China 45,092 63.7 2.04 25,713 1.70 2,613 1,323.6 53.5 2.7
SouthAfrica
33,106 81.3 1.50 7,624 0.50 255 47.6 855.8 16.0
Nigeria 112 15.6 0.01 605 0.04 112 134.4 5.3 0.6Source: World Insurance in 2006, Swiss Re, Sigma No. 4/2007
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Lessons from Other Markets3
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Lessons from Other Markets - Brazil
Summary of major factors contributing to the rapid growth of theinsurance industry in Brazil:
Government induced economic reforms through an economicstabilisation plan
- Economic stability leading to the adoption of the nationalcurrency as a trustworthy value reference;
Improved transparency and disclosures, leading to enhanced
confidence and trust in the system by the publicOpening of the market to foreign participants in 1996, leading totransfer of capital, introduction of new products, technologies andknowledge that helped to enhance industry performance;
Introduction of a modernisation process based on IAIS* principles
adopted in the most developed markets; andIntroduction of several policy changes to stimulate the interest of the Brazilian populace to the benefits of insurance leading to amore mature market.
*IAIS International Association of Insurance Supervision
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Lessons from Other Markets - Brazil
These policies have increased thecontribution of insurance to GDP from0.8% in 1994 to 2.55% in 2006.
These conditions provide a favorableenvironment for non-life insurance(benefited by the growth of economicactivities as a whole), as well as for lifeinsurance lines (a protectioninstrument which had lost itsattractiveness during the economicinstability period).
Contribution of Insurance to GDP
Life & Non-Life Ratios
Source: Ministry of Finance, SUSEP; 2006
Today, Brazil is the largest insurance market in Latin
America, with 2006 total premiums of US $ 29.6 billion.
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Lessons from Other Markets - India
The insurance sector in India has come a full circle from being an open competitivemarket to nationalisation and back to a liberalised market again
No legislation to regulateinsurance business prior to1912In the year 1912, the LifeInsurance Companies Act,and the Provident Fund Actwere passedHowever, the Life InsuranceCompanies Act, put Indiancompanies at a disadvantageto foreign companiesMushrooming of insurancecompanies to about 176 by
1938Many financially unsoundconcerns were also floatedsuring this period & failedmiserablySeveral frauds during1920's/30's sullied insurancebusiness in India
Colonial Era(Pre 1938)
The first comprehensivelegislation was introducedwith the Insurance Act of 1938
The Act provided strict Statecontrol over insurancebusinessNationalisation of lifeinsurance business under theLife Insurance Corporation(LIC) in 1956Non-life) insurancebusiness/general insurance
was nationalised with effectfrom January 1, 1973 &grouped into four companies
The Malhotra Committee wasformed in 1993 to initiateinsurance sector reformsInsurance sector in India wasliberalized in March 2000
Nationalisation Era(1938 2000)
Lifting all entry restrictionsfor private players andallowing foreign players toenter the market with somelimits on direct foreign
ownershipPresently, there are about:16 life insurance companiesand 15 non-life insurancecompanies in the marketPotential for growth in themarket is immense e.g.nearly 80% of Indianpopulation is without lifeinsurance cover as at July2007Life insurance premiums &general insurance premiumsaccount for 2.5% & 0.65% of the country's GDPrespectively
Liberalisation Era(2000 till date)
Source: India 2010; A Lloyds View, June 2007
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Lessons from Other Markets - India
Liberalisation has led to amarked increase in Indias
premium levels and privatecompanies have gained a34.6% market share
Source: India 2010- A Lloyds View
Premium Levels(2006)
USD 6.0bn
Nominal annualpremium growth
13% (during 2006)
Premium density(2005)
India: USD 4.4 percapita
Regulator InsuranceRegulatory andDevelopmentAuthority (IRDA)
Main non-lifeindustryassociation
General InsuranceCouncil
Main life industryassociation
Life InsuranceCouncil
India InsuranceEnvironment
Premium Levels (1995-2006)
Premium levels vs. market share bysegment (2006)
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Lessons from Other Markets - India
The Indian insurance sector consists of public sector undertakings, PSUs,foreign and private companies. However, the private companies are steadilybuilding their customer base and currently account for 34.6% of the marketshare. Strengths of the private companies are highlighted below:
Small & Flexible
Good Staff,Systems,
Processes &Data
Greater Focuson Underwriting
Availability of smaller lessdisparate workforce whichenables quick response tochanging market conditions
Best-in-class staff with highremunerationImplementation of high qualitysystems and processesAdoption of international bestpractice standards to providehigh quality data
Emphasis placed on soundunderwriting procedures withhigh-quality back office processes
Strong Claims-Paying
Reputation
Greater efficiency ininformation captureleading to betterreputation for claimssettlement
Product FocusAggressive productdevelopment
Source: India 2010- A Lloyds View
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Lessons from Other Markets - India
Distribution Channels Key Growth Drivers
70-75% of all Indian non-lifepremiums are distributedthrough direct sales agents of the insurance companies.
Bancassurance is slowly pickingup.
Brokers account for a smallpercentage of all premiums
distributed.
Growing consumer class
Influx of foreign directinvestment
Public Private Partnership (PPP)infrastructure development
Insurer quality and clienteducation
Catastrophe exposure
Source: India 2010- A Lloyds View
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Lessons from Other Markets - China
Comparisons in 2004 Amount $bn
Position WorldRank
Total Insurance Premium 52.2 1.61% 11
Insurance density percapita
40.2 502 72
Insurance penetration/GDP 3.26% 7.85% 42
Between 2000 and 2005
Gross Domestic Investmentrose from
33.7% of GDP to 41.2%
Gross savings rose from 37.9% of GDP to 49.5%
Corporate savings rose from 22.1% of GDP to 30.2%
Household savings rose from 12.9% of GDP to 16.8%
By 2006, there were 93insurance institutions in Chinawith nearly 2 million employeesaccounting for 40% of thefinancial sector workers.
Total premiums rose from $30.6million in 2001 to $493 billion in2005, representing $54 perhead and 2.7% of GDP, of which$46.16 billion was for life, $17.52 billion for property andhealth and accident $6.41billion.
Assets of insurers by the end of 2005 amounted to $0.21 trillion.
China is the worlds 11 th largestinsurance market by totalpremium volume, up from 16 th in 2000, with premium volumeof $62 billion.Source: China Insurance Regulatory Commission; The Geneva Association,
January 2008
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Lessons from Other Markets - China China will remain an attractivemarket for foreign insurancecompanies for the followingreasons:
At 40%, China has one of the highest personalsavings rate in Asiaindicating a huge potentialfor personal-retirementsavings and protectioninsurance.
Insurance plays a majorrole in channelling fundsinto state infrastructureprojects
Chinas population is ageingfast and the government
has recognised that privatefirms will play an essentialrole in creating a viablepensions system for China.
Total insurance penetration(premiums per GDP) at3.3% is still very low,compared to an 8.1% world
Reform &Innovation
Deregulation of the Sector
Developmentof sound risk
practices
Developmentsociety &economy
The Schematic below presents an overview of thedevelopment of Chinas insurance industry
Establishment of a moderninsurance system
Pioneered listing on overseas stockmarketsImproved corporate governanceand optimised process operations
No restrictions for foreign investedinsurance companies, except forlife which must be established as a
joint venture
Sustenance of balance betweenopening up and risk controlCooperation of internationalinsurance supervision
Adoption of principles of IAISDevelopment of corporate internalcontrolsDevelopment of long-term risk
prevention framework
Provision of long-term funds foreconomic construction, supportinginvestment and promotingeconomic growth
Source: The Geneva Association, January 2008
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Lessons from Other Markets VietnamAlthough China has achievedimpressive compoundgrowth of around 30% peryear, it has been outstrippedby Vietnam, which has grownat an even rate of 45%.
Vietnam has a rapidlygrowing population of around82 million people and a realGDP growth rate consistently
around 7% for the last fiveyears.
Economic growth rates areforecast to remain aroundthis level at least in themedium term.
Life insurance premiumincome grew at an annualrate of 67% in the five-yearperiod ending in 2004 beforetaking a pause in 2005. From1999, when the new foreignentrants arrived, to 2004,
total life insurance premiumgrew from less than $20
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Lessons from Other Markets Vietnam
The insurance market is regulated bythe Department of Insurance under theMinistry of Finance. The departmentsupports the insurance industry with anumber of measures that include:
- Promoting the network of professional agents and otherdistribution channels introducinggreater flexibility to invest insurancefunds by allowing the establishmentof investment management fundcompanies
- Allowing grants of additional licensesto foreign companies promoting self-regulation of the industry
- Encouraging use of insurance fundsto develop the countrys economy.
Customers
Tied
Agents/AgencyChannels
Brokers
Bancassurance
(Local &Internationa
l Banks)
PostOffices
CallCentres
Distribution Channels Employed inVietnam
The regulatory body and insurance companies are focusing onimproving the quality and professionalism
of their distribution channels & agents respectively.
Source: Vietnam Association of Insurers
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Lessons from Other Markets Vietnam
Deregulation of market access
Deregulation of distribution
systems
Developmentof insuranceproducts and
prices
Regulationscompared tobest practice
regulatory
regimes
100% participation of foreign owned insurersand brokers
Deregulation of the insurance industry in Vietnam
Freedom of insurers in the life and non-lifesegments to develop their distribution channelsInsurers formulate their own strategies foragencies and compile the agencys commissiontablesNo minimum capital requirement forestablishment of branches
Insurers create and determine products (non-compulsory) prices through marketcompetition
Impartial regulations for local and foreigninsurersDisclosure and consumer information
Transparent regulatory processSource: Studies on the Competitiveness and Impact of Liberalization in Financial Services:The Case of Insurance services; UNDP May 2006
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Overall Market Outlook 4
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Overall Outlook What will characterise the
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Overall Outlook - What will characterise theindustry in the medium term?
Insurance
Penetration
GDP PerCapita
Dormancy Early Growth Sustained Growth Maturity
NigeriaToday
VISION2020
North America
Western America
India
Egypt I n s u r a n c e
G a p
SouthAfrica
.. The Nigerian insurance sector is on the cusp of metamorphosis.However, key constraints/ dependencies exist in the institutional
framework and critical market infrastructure.
The insurance breakthrough: How big is the
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The insurance breakthrough: How big is theopportunity?
Key challenges to be addressed to unlock the full potential of theNigerian insurance sector include the following:
REGULATOR OPERATOR
Realignment to internationalnorms and practices- Solvency
- Corporate governance- Transparency
Risk-based approach
Enforcement
Regulatoryconvergence/collaboration(e.g. CBN)
Consumer rights protection
Skill and capacity gaps- Managing large, diversified
businesses
Risk and capital managementInvestment/assetmanagement
ROI pressure meetingmarket/stakeholder
expectationsNIA as a self-regulatingorganisation (SRO)?
Insurance education/literacy and public awareness
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Key Success Factors5
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Key Success Factors
Clear articulation of vision of Nigerian insurance sector,within the context of national economic agenda.
Effective engagement of all stakeholders
- Government
- NAICOM- NIA- Operators
Focused, disciplined execution with periodic progress
reporting and measurement
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Appendix
Life Insurance Growth Penetration and Density b
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Life Insurance Growth, Penetration and Density bRegion
Life Insurance Growth, Penetration and Density by Region
Premiums (US$ M)
RealGrowth
Share of WorldMarket (%)
Premiums in % of GDP
Premiums perCapita (US $ M)
2006 2006 2006 2006 2006
America 601,784 4.2 27.24 3.44 672.6North America 572,860 3.8 25.93 3.95 1,731.8Latin America & Caribbean 28,923 14.1 1.31 0.98 51.3
Europe 940,586 12.4 42.57 5.30 1,119.6Western Europe 927,431 12.3 41.98 5.95 1,862.9Central & Eastern Europe 13,154 19.2 0.60 0.64 40.3
Asia 602,266 3.6 27.26 5.00 154.6
Japan & Newly IndustrialisedAsian Economies 500,871 0.6 22.67 8.38 2,368.4
South & East Asia 96,627 23.6 4.37 2.06 28.6Middle East & Central Asia 4,769 5.3 0.22 0.34 15.8
Africa 35,468 21.6 1.61 3.40 38.3Oceania 29,214 6.1 1.32 3.36 896.3
World 2,209,317 7.7 100.00 4.48 330.6
Industrialised countries 2,033,051 6.6 92.02 5.53 2,026.0Emerging Markets 176,266 21.1 7.98 1.42 31.6OECD 1,976,063 6.6 89.44 5.24 1,645.0G7 1,609,706 6.8 72.86 5.66 2,225.7EU, 15 Countries 887,928 12.8 40.19 6.20 2,197.8NAFTA 579,674 4.0 26.24 3.78 1320.1ASEAN 20,299 2.5 0.92 1.96 41.4
Source: The Geneva Association, January 2008
Non-Life Insurance Growth Penetration and
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Non Life Insurance Growth, Penetration andDensity by Region
Non-Life Insurance Growth, Penetration and Density by Region
Premiums (US$ M)
RealGrowth
Share of WorldMarket (%)
Premiums in % of GDP
Premiums perCapita (US $ M)
America 727,945 1.5 48.08 4.17 813.6North America 685,440 1.0 45.27 4.72 2,072.2Latin America & Caribbean 42,505 10.0 2.81 1.44 75.4
Europe 544,295 0.5 35.95 2.97 626.0Western Europe 501,374 -0.2 33.11 3.09 966.6Central & Eastern Europe 42,920 9.2 2.83 2.09 131.4
Asia 198,553 4.4 13.11 1.63 50.4
Japan & Newly IndustrialisedAsian Economies 142,750 1.8 9.43 2.35 664.6
South & East Asia 41,670 14.5 2.75 0.89 12.3Middle East & Central Asia 14,133 5.7 0.93 1.02 46.8
Africa 14,200 6.2 0.94 1.36 15.3Oceania 29,102 -1.5 1.92 3.34 891.0World 1,154,094 1.5 100.00 3.04 224.2
Industrialised countries 1,357,129 0.6 89.63 3.65 1,336.2Emerging Markets 156,965 10.8 10.37 1.27 28.2OECD 1,362,097 0.6 89.96 3.57 1,120.1G7 1,121,609 0.4 74.08 3.84 1,508.6EU, 15 Countries 469,400 -0.3 31.00 3.12 1,107.4NAFTA 693,698 1.0 45.82 4.52 1,579.8ASEAN 12,678 -0.6 0.84 1.01 21.4
Source: The Geneva Association, January 2008
Total Insurance Growth, Penetration and
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Total Insurance Growth, Penetration andDensity by Region
Total Insurance Growth, Penetration and Density by Region (2006)
Premiums (US$ M)
RealGrowth
Share of WorldMarket (%)
Premiums in % of GDP
Premiums perCapita (US $ M)
America 1,329,729 2.7 35.71 7.61 1,486.3North America 1,258,301 2.2 33.79 8.67 3,804.0Latin America & Caribbean 71,428 11.6 1.92 2.42 126.7
Europe 1,484,881 7.5 39.88 8.27 1,745.7Western Europe 1,428,806 7.3 38.37 9.04 2,829.5Central & Eastern Europe 56,075 11.4 1.51 2.73 171.6
Asia 800,819 3.8 21.51 6.63 205.0
Japan & Newly IndustrialisedAsian Economies 643,621 0.9 17.29 10.74 3,033.0
South & East Asia 138,297 20.8 3.71 2.95 40.9Middle East & Central Asia 18,901 5.6 0.51 1.37 62.5
Africa 49,667 17.5 1.33 4.77 53.6Oceania 58,316 2.2 1.57 6.70 1,787.3World 3,723,412 5.0 100.00 7.52 554.8
Industrialised countries 3,390,180 4.0 91.05 9.18 3,362.2Emerging Markets 333,231 16.3 8.95 2.69 59.8OECD 3,338,160 3.9 89.65 8.81 2,765.1G7 22,731,315 4.1 73.36 9.49 3,734.3EU, 15 Countries 1,357,328 7.6 36.45 9.32 3,305.1NAFTA 1,273,373 2.4 34.20 8.29 2,899.9ASEAN 32,977 1.3 0.89 2.98 62.8
Source: The Geneva Association, January 2008
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d l d
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Listed Insurance Companies Post-ConsolidationS/N Name of Company Market
Capitalisation(Nbn)
1 Amicable Assurance 0.227
2 Baico Insurance 1.48
3 Law Union & Rock 202.08
4 Confidence Insurance 0.128
5 Continental Insurance 63.27
6 Cornerstone Insurance 32.13
7 Lasaco Assurance 6.99
8 Custodian & Allied 26.00
9 Equity Assurance 33.91
10 Great NigerianInsurance
5.70
11 Guinea Insurance 3.53
12 Crusader Insurance 24.94
13 WAPIC Insurance 55.26
S/N Name of Company MarketCapitalisation(Nbn)
16 Acen Insurance 0.57
17 Consolidated Hallmark 26.46
18 Standard Alliance 16.27
19 Security Assurance 145.8
20 Mutual Benefits 28.6721 N.E.M Insurance 24.34
22 Niger Insurance 40.51
23 Sovereign Trust 12.61
24 Universal Insurance 56
25 Linkage Assurance 19.0326 Unic Insurance 14.43
27 ST Assurance 30.04
28 Prestige Assurance 11.9
29 AIICO 16.57
l hSource: Nigerian Stock Exchange; 7 March, 2008