Ten years after the last recapitalisation exercise in the insurance industry, the 58 insurance companies in the country will in the new year, face a new form of recapitalisation to cope with the current business reality, our correspondent exclusively gathered.
The new recapitalisation process, investigation shows, will categorise underwriting firms into tiers, while the level of capitalisation will determinesl the risk the companies 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 first quarter of 2018.
In a proactive approach by underwriting firms, our correspondent learnt that about 25 out of the 58 insurance companies in the country have already commenced recapitalisation process through mergers and acquisitions deals.
Some of them, investigation reveals are currently in acquisition talks with their local and foreign investors to acquire substantial stake in their firms.
Already, six insurance firms are planning to raise N22 billion funding from new and existing shareholders through the capital market in a bid to recapitalise and become stronger to play active roles in insurance market by the time the new supervision model, that is, RBS kicks off, in the country, next year(2018).
Already, WAPIC Insurance PLC, Sovereign Trust Insurance(STI) PLC, Consolidated Hallmark Insurance PLC, Royal Exchange PLC, Mutual Benefits Assurance PLC and Law Union and Rock Insurance PLC have concluded plans to raise a cumulative N22 billion through public offers, rights issue and private placement respectively.
The likes of Niger Insurance Plc, Universal Insurance PLC, International Energy Insurance (IEI), among others, are already discussing with various foreign investors who have indicated interest to invest in Nigeria’s insurance industry.
In the same vein, Standard Alliance Insurance PLC, has restructured its holding structure as part of plans to further raise additional capital to be competitive when RBS finally takes off.
While most of them had already notified NSE and the Security and Exchange Commission (SEC) of their plans to approach the market through public offers, others are already discussing at the board level on ways to woo new and existing shareholders to acquire more holdings in their respective insurance firms.
Commenting on this issue, the chairman, WAPIC Insurance, Aigboje Aig-Imoukhuede, said his company is approaching its shareholders at this time to seek approval to raise N10 billion additional capital as a proactive step towards getting the company ready and set for a much-anticipated regulatory increase in the minimum capital of insurance companies.
This, he said, is particularly instructive in view of the recent adoption of the Risk Based Supervision model by the National Insurance Commission (NAICOM) and the directive to insurance companies to implement the Solvency II Capital Allocation model by 2018.
NAICOM is expected to commence capital verification exercise, ahead of the new recapitalisation exercise to ensure underwriting firms are adequately capitalized to meet their business obligations, following information that some underwriters have eaten deep into their shareholders’ fund and leaving them undercapitalised.
In the 2007 insurance industry recapitalisation exercise, non-life insurance firms were mandated to raise their shareholders’ fund to N3 billion; life insurance operators, N2 billion, composite N5 billion and reinsurance N10 billion.
However, six insurers are currently undercapitalised and has been notified by NAICOM to beef up their capital base to the minimum capitalisation even before the proposed new capital base takes off in the new year.
Standard Alliance Insurance Plc, operating a composite structure, has N4.65 billion as against N5 billion, needing N350 million to balance up. Guinea Insurance Plc, on the other hand, has N2.89 billion, as against N3 billion; International Energy Insurance has N2.12 billion, instead of N3 billion, Goldlink Insurance shareholders fund is already in the negative of N-4.25 billion; Old Mutual Nigeria Life Assurance has N1.50 billion as against N2 billion while Unic Insurance has N587.81 million.
The defaulting firms, according to findings, have been mandated to shore up their capitalisation or risk losing their operating licenses.
While some underwriting companies, which 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 commissioner for Insurance, Alhaji Mohammed Kari, had said, the commission will examine the current capital base with input from insurance industry on whether it is adequate or not. “The commission will examine the current capital base to ascertain whether it is adequate or not. And if we feel its inadequate, we will review it up,” he said.
Meanwhile, to deepen insurance penetration and acceptance, NAICOM has introduced new channels of insurance distribution in the country. The commission has created referral partners or agents who are going to be instrumental in this new line of insurance products and services distribution. These channels, according to the commission, will entail integrating and involving many organisations to be partners/agents of insurance companies in the distribution of insurance products across the country. Some of the distribution channels are; bancassurance, mobile insurance, among others.
To this end, the commission has met with the Central Bank of Nigeria(CBN) on bancassurance and both issued a bancassurance guideline in April 2017, thus lifting an embargo earlier placed on this insurance distribution channel by NAICOM.
Bancassurance is arrangement in which insurance companies leverage on the customer base of banks to sell insurance products to banks’ customers while referral model is when a bank refers its customers to its partner insurance companies and in return receives a commission from the insurance company.
The commission has equally met Nigerian Communications Commission(NCC) on mobile insurance in a bid to lift the embargo it earlier placed on mobile insurance. Before the embargo was placed in 2016, at least 150,000 people subscribed to mobile insurance on a monthly basis.
According to NAICOM spokesman, Mr. Rasaaq Salami, the agreement paved way for licensing of telcos as distribution channels in a bid to reinstate the sales of insurance through platform of telecommunications outfits.
Kari also added that this will not only deepen penetration to the mass of uninsured populace in Nigeria; it will reduce operational cost of insurance companies and make them more profitable.
Reacting on the prospect of mobile insurance, especially now that NAICOM has lifted the suspension, group managing director, Cornerstone Insurance Plc, Mr. Ganiyu Musa, said the first phase of its mobile insurance product tagged “Airtel Insurance” operated for 18 months, saying, throughout this period, about 4.7 million people tried to register for the product with 2.7 million subscribers succeeding, while about 1.8 million covers were purchased in the process.
“During that period, we paid about 329 claims on hospitalisation and I think we paid about three claims on death,” he pointed out.
Through mobile insurance, he believes millions of people would be persuaded to buy insurance products, thereby generating billions of premium, especially, as more insurance companies start keying into this platform in the new year.
With NAICOM concluding arrangements to start the second phase of its Market Development and Restructuring Initiative, MDRI, next year could be the breakthrough for insurance industry to realise its long targeted N1trillion insurance premium benchmark.
The objectives of MDRI are; to enforce compulsory insurance products in Nigeria, sanitise and modernise the insurance agency system, wipe out fake insurance institutions and to introduce risk-based supervision.
While the aim is to improve the public perception of the insurance industry in the country, the expected result of implementing this initiative is an increase in industry gross premium, job creation and the lowering of the insurance gap as well as increased public trust in the Nigerian insurance market.
To this end, the commission is collaborating with the state governments to ensure the successful implementation of the, especially, compulsory insurances. Already, there is an ongoing discussion with Lagos, Ogun, Gombe, Kaduna, among other states on implementation of these compulsory insurances in the MDRI.
NAICOM’s deputy commissioner, Technical, Sunday Thomas, said the regulatory body intended to meet with the Governors’ Forum so that the commission can get the buying in of the state governors as a group.
Thomas said “part of the selling point is the fact that it is going to enhance their employment initiative, increase their IGR, among other advantages.”
This, if successful, he said, is expected to generate hundreds of billions of Naira as states would be mandated to insure their public buildings, among others.
Meanwhile, with insurance industry planning to implement uniform ratings on its products while also reviewing the current rate of, especially, third party motor insurance policy in 2018, motorists may be made to pay more for insurance certificates. This is because the prices of cars and its spare parts have remarkably gone up, yet motorists pay N5,000 only for Third Party motor insurance premium. And for those who buy this insurance lower than N5,000 because of rate-cutting, they will be mandated to pay a minimum of N5,000. And if the bill before the National Assembly seeking increment of the Third Party Motor Insurance policy from the current N5,000 premium to N20,000 is passed into law, then, the 16 million vehicles owners in the country would be made to pay 300 per cent higher than what they are paying now.
Umaru Kurfi, a Senator from Katsina Central, had proposed a bill in the National Assembly, seeking to increase Third Party insurance premium to N20,000. The bill has undergone the first and second reading and has been referred to Senate Committee on Banking, Insurance and Other Financial Institutions.
In the same vein, insurance operators have begun the process of funding the insurance rebranding project by agreeing to raise 50 per cent of the funds for the project from companies gross premium income, and the balance 50 per cent, shared evenly amongst operators.
Speaking at the November,2017 edition of the Insurers’ Committee meeting in Lagos, the managing director, Custodian & Allied General Insurance Limited, Toye Odusi, said operators have all agreed to comply with the resolutions to ensure that the project commences in first quarter 2018.
He noted that NAICOM, Nigerian Insurers Association (NIA), Nigerian Council of Registered Insurance Brokers(NCRIB) and other trade groups have also agreed to support the project financially.
According to him, most insurance companies built in their contributions into their 2018 budget, observing that the contributions have started, while the total sum would be pooled together in the first quarter.
He disclosed that the rebranding initiative would be driven via social media, print and electronic platforms, adding that greater attention will be on the social media due to the youth population.
The director-general, NIA, Mrs Yetunde Ilori, said the rebranding project would not be product-based, but a general awareness campaign on benefits of insurance.
She noted that the campaign was geared towards encouraging Nigerians to rely on insurance even as they make adventures. She said the industry hoped to use the campaign to encourage Nigerians to pursue their visions vigorously with the assurance that insurers are always ready to support their dreams.
Speaking in an exclusive interview with our correspondent at the weekend, the managing director, Anchor Insurance Company Limited, Mr. Mayowa Adeduro, said the proposed recapitalisation exercise, the N300 million insurance rebranding project and opening of new insurance distribution channels would allow the insurance industry realise its N1trillion insurance premium target, contribute more to the nation’s GDP and enhance the growth of the insurance industry in 2018.
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