BY ZAKA KHALIQ
With the Risk Based Supervision(RBS) set to commence in the insurance industry before year end and subsequently lead the sector to another round of recapitalisation, 10 years after the previous one, the aim of this exercise is to see stronger insurance firms emerged thereafter. ZAKA KHALIQ writes.
In United States, U.K and other developed economies, insurance companies are strong enough to own banks. But in Nigeria, the story is different as banks have insurance firms as subsidiaries instead.
The business of insurance, by nature, requires huge liquidity to absorb large risks. But it is more worrisome in the country that major risks in the aviation, oil and gas and maritime industries are still dominated by foreign insurers, because the local insurers have low capital level to acquire large risks, although, there are few local underwriters who had performed fantastically well in the aforementioned sectors.
Another pathetic scenario is that some insurers absorb risks that are more than their capital, hence, find it difficult to pay claims, when they arise.
In a bid to ensure that stronger insurance firms emerged in the country, the
National Insurance Commission(NAICOM) is coming up with a Risk Based Supervision(RBS) framework that will mandate insurance operators to operate within their capital limit.
To this end, the regulator is set to commence capital verification exercise in insurance industry in the next couple of weeks in readiness for RBS expected to lead the insurance sector to recapitalisation this year.
The capital verification exercise is to ensure underwriting firms are adequately capitalized to meet their business obligations, following information that some underwriters have eaten deep into their shareholders’ fund, thus, are undercapitalised.
The erring firms, according to findings, would be mandated to shore up their capitalisation or risk losing their operating licenses. When contacted to confirm whether the capital verification exercise will go ahead as scheduled, the head, corporate affairs, NAICOM, Mr. Rasaaq Salami, said “Yes, the exercise will soon commence. Insurance companies have already been informed about this.”
This exercise, he said, will entail a verification of the Assets and Liabilities of all insurance Companies, while boards are advised to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements forthe year ending 31 December, 2016. He added that the new move is for the protection of policyholders and beneficiaries of insurance contracts against unexpected losses of insurance companies.
Speaking to LEADERSHIP Sunday on this development, the managing director, Universal Insurance PLC, Mr Ben Ujoatuonu, said the capital verification exercise is a good concept as it would make insurance firms sit up and financially strong to meet their obligations as and when due, saying, his firm is ever ready for this exercise.He said underwriters had already commenced classification of their assets to ensure that all assets on their respective books are written in the name of the concerned insurance firms. “At the moment, our shareholders fund is far above the minimum level. It is in the region of N7 billion and our solvency margin is far above minimum level. It is in the region of N5 billion. So, in terms of capital verification, we are ready and we have al those things on ground to show for it,” he pointed out.
Already some insurance companies in the country have commenced recapitalisation process through mergers and acquisitions, ahead of the exercise that will lead to recapitalisation of the industry. Some of them, investigation reveals, are currently in acquisition talks with foreign investors to acquire substantial stake in their firms, even as some underwriters have concluded acquisition plan with their respective investors.
While some underwriting companies, who have started the recapitalisation negotiation process since last year, have concluded talks with their investors, mostly foreign investors, some are still at the discussion stage with their buyers, even as few listed insurers are eyeing the nation’s capital market to raise funds.
The planned recapitalisation exercise, which would be done through RBS, will categorise underwriting firms into tiers, while the level of capitalisation determines the risk businesses to underwrite.
The new capital base, it was learnt, would be adequately spelt out in the Risk Based Supervision(RBS) framework, that would be made public in the second quarter of 2017.Some companies are now in search of foreign investors in a bid to expand their operating capital and be in position to handle big business tickets, which are presently taken abroad despite the local content policy.
Some of the firms are: Niger Insurance Plc, Royal Exchange Assurance Plc Universal insurance, International Energy insurance, among others. Some of these firms said they are already discussing with various foreign investors who have indicated interest to invest in Nigeria.
Speaking on his company’s effort towards injecting foreign funds to its operations, Managing Director, Niger Insurance Plc, Kola Adedeji, said his company is looking for foreign investor not only for growing its capital size but for blending and greater exposure.
“Aligning with foreign investors has a lot of advantages, in area of product development, the skill set, knowledge, we want them to blend and we need greater exposure, so that we can innovate. We can’t do it on our own but I must tell you, there are a lot of interests in Nigerian insurance industry from outside the world, a lot. Anytime you go out you meet enquiries. So, the board decided we bring in foreign investors for reason of greater exposure,” he said.
Also, the managing director, International Energy Insurance, Mr. Peter Irene, confirmed that his company is searching for foreign partners. “We have plans for that and many foreign investors are interested in Nigerian firms for investment. If you look round, you see the trend. Many investors coming into the industry come with huge funds, I don’t think local people can get that kind of money.
“So from what we heard from our existing investors, foreign investors are coming with foreign capital. Most of them are not Nigerians. Most of the reinsurance we are doing, even locally, are still transferred abroad because they have more technical know-how. So, they are bringing foreign capital,” he said.
Alhaji Muktari of Royal Exchange Assurance alao said the company is talking to about three foreign investors. “I don’t want to mention names; we are talking to about three international investors and two local investors. That is also going to be concluded between now and end of this last quarter.
“We are also working towards listing a bond in Nigeria Stock Exchange and all the documents, process and approval from the Securities and Exchange Commission(SEC) is being tidied up. We hope to list bond of about N3 billion with the Nigeria Securities and Exchange commission in the next two months,” he said.
Recently, Standard Alliance Insurance Plc announced it has formally merged with its sister company, Standard Life Assurance, to become a one big insurance company, underwriting life and non-life insurance businesses.
South Africa’s Liberty Holdings is also acquiring a 75 per cent stake in UNIC Insurance Plc, a Nigerian insurer, for $12 million. According to Liberty Chief Executive, Thabo Dloti, “We see Nigeria as a market of the future. It may be having difficulties now, but everything indicates to us that in the long term, Nigeria is going to be a big contributor of growth if you are doing business in Sub-Saharan Africa.”
Moreover, Allianz Global Corporate and Specialty (AGCS) Africa, said it is targeting investment opportunities in insurance sector of the country, but it’s taking its time to assess some insurance companies in a bid to acquire them. Although, it did not mention the insurers it intends to buy, insider source revealed that the it is eyeing some of the struggling underwriters.
Chief Executive Officer, AGCS, Delphine Maidou, stated that the firm would have loved to acquire a new insurance license, instead of acquiring an existing firm, she pointed out that AGCS is still assessing some insurance companies with a bid to acquire them in the near future.
“We want to be able to manage the company we buy. When we are coming into the market , we are coming with products that we will want to sell and in the past few years, it’s been difficult to get new licence, unless you buy into the existing ones. And most companies have several shareholders, which makes it difficult to buy, “ she stated.
Cornerstone Insurance had acquired FIN Insurance, in a bid to expand its operations and capitalisation, although, Finsurance is now operating as a subsidiary of Cornerstone Insurance.
In the same vein, Great Nigeria Insurance(GNI) Plc announced it has completed the sale of 75 per cent stake to Insurance Resourcery Consultancy Services Limited(IRCSL), who, by this transaction, becomes a major shareholder in the insurance company.
On the other hand, a Cote D’ Ivoire Insurance Company, Sunu Assurances Vie Cote D’Ivoire, earlier in the year, acquired a 60 per cent stake in Equity Assurance.
LEADERSHIP Sunlday learnt that aside the aforementioned ones, there are a number of ongoing mergers and acquisitions talks at an elementary stage, with the concerned insurers expected to make the deal public between now and the second quarter of the year.
Meanwhile, the commissioner for insurance, Alhaji Mohammed Kari, had said since the last recapitalization exercise in 2007, the business environments and the risk profile of all insurance institutions have changed, hence, the need to review the current capital base. “We will look into the current capital base to see whether it is enough to underwrite insurance business, and if we feel it is not enough, we will upgrade it,” he stressed.
The recapitalisation exercise, coming 10 years after the last exercise that took place in 2007, experts said, is expected to shrink the number of insurance companies in the country, although, the insurers that will emerge after this exercise are going to be stronger ones, capable of acquiring large risks and subsequently, putting an end to capital flight in insurance industry.