How insurers should manage exchange rate risk – Dr. Yusuf

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf has identified investment in hedged assets, currency forwards, diversification of investment portfolio and more as means insurance companies could adopt to manage the volatile exchange rate risk.

Dr. Yusuf, who spoke on the topic: ‘2024 Budget and Insurance Industry’ at the Year 2024 Chartered Insurance Institute of Nigeria (CIIN) Business Outlook in Lagos, stated that foreign exchange risk arises when a business's financial performance could be affected by change in the exchange rate.

He also advised insurance operators to adopt currency options in foreign exchanges, currency forwards and forward contracts.

He said foreign exchange rate risk, brings about an increase in forex exposure of business, putting offshore investors at big risk and hurting companies' balance sheets.

On how insurance companies can remain resilient in the face of economic maladies, he submitted that the business model should be flexible and nimbleness to reflect current market dynamics.

He also noted that insurers should embrace innovation; hedge against volatile macroeconomic variables, especially exchange rates; leverage technology for better efficiency and cost-effectiveness; collaborate and partnership and scenario planning.

Other measures according to him include deepening customer focus or customer-centric business strategy; cost containment; minimizing forex exposure in business operations because of exchange rate risk and minimizing exposition to bank credit because of interest rate risk.

Source: Chuks Udo Okonta