Insurance industry players were furious with the decision of the federal government to shift back the recapitalisation deadline date from January 1st, 2019 to October 1st, 2018, LEADERSHIP can now reveal. To this end, operators are now under serious pressure to recapitalise within the next 33 days. Some of them are now in discussion with their respective boards to recapitalise to play in either Tier 1 or 2 of the three Tier-based recapitalisation model. In a latest twist to the recapitalisation issue, the government through the National Insurance Commission (NAICOM) issued a circular earlier in the week to all insurance companies mandating them to recapitalise and communicate to the commission, which of the three tiers they intend to play in before October 1st , 2018, when Tier-Based Minimum Solvency Capital requirements, for assessment of capital adequacy and solvency control levels of all insurance companies in Nigeria takes off.
According to the circular, “Only companies that meet the respective Tier requirements shall lead on new businesses in those categories with effect October 1, 2018. Companies shall be assessed, in the first instance, on their approved financial statement for 2017, and/or, audited half year account for 2018. However, where a company is yet to obtain approval for its 2017 financial statement, its last approved audited accounts will be used for the assessment.”
The Commission had earlier put the deadline for the implementation of this exercise at 1st of January, 2019, of which operators vehemently disagreed with, before changing its stand to shift it backward. This shows that operators only have one month and two days to recapitalise. By this latest development, composite insurance companies who are now interested to play in the Tier 1 category are expected to increase their capitalisation from N5 billion to N15 billion, while those interested in the same Tier but operating Life business are mandated to upgrade their capital base from N2 billion to N6 billion, even as Non-Life Insurers planning to play in this Tier are expected to improve their capitalisation from N3 billion to N9 billion. While Composite Insurers willing to operate in Tier 2 are expected to increase their capitalisation to N7.5 billion, Non-Life Operators are mandated to increase their capital base to N4.5 billion, while Life Operators under Tier 2 category are expected to increase capitalisation to N3 billion.
However, for insurers willing to play in the lowest Tier, which is Tier 3, they are expected to maintain the current capital base of the Insurance industry. In this instance, Non-Life Insurance Firms in Tier 3 to maintain N3 billion; Life Insurance Operators to maintain N2 billion and Composite Insurers are to maintain N5 billion capitalisation. As at yesterday, investigation shows that most companies were under serious pressure to meet this new deadline, with some of them speeding up discussion with their new investors, while others are approaching existing shareholders to pump in money into the companies. However, the big operators, it was learnt, were unmoved by this development as they have already surpassed the minimum capitalisation benchmark.
Reacting to this development, the chairman, Mutual Benefits Assurance PLC, Dr. Akin Ogunbiyi, said the implementation of the tier-based recapitalisation by NAICOM could be counter-productive, anti-growth and disruptive to the insurance industry.
Ogunbiyi, who was the chairman of the occasion, at the 5th BusinessToday Anniversary and Awards in Ikeja, Lagos, added that immediate implementation of the Tier based rating could lead to crisis of confidence for the entire insurance industry where only about seven of the 58 companies qualify under the new standard. Stating that this could also lead to massive de-listing of Insurance stocks from the Nigerian Stock market, he stressed that insurance stocks are already classified as penny stock due to inability to support pricing by regular dividend payments.
Believing it would lead to hostile take-overs for peanuts, especially, by foreign investors with short term gains as focus, he pointed out that it might as well be practically impossible to fully implement the provision of the Local Content law, even as the rebranding project of the insurance industry may suffer a major set- back while the public perception of some companies and the entire industry will be affected adversely.
Stating that the Tier based capital requirement whereby a Tier 1 composite insurance company would require a solvency capital of N15bn, is the highest in African insurance market, he pointed out that the solution to challenges facing the industry is not capital increase. He said the National Pension Commission (PenCom) is yet to increase the capital base of Pension Fund Administrators(PFAs) and Pension Fund Custodians(PFCs) from N2 billion and N5 billion respectively, 14 years after inception, yet, they are managing and have grown the pension assets to about N8.2 trillion, while the insurance industry who keep on recapitalising is no where near this feat, which suggests that the capital base might not be the problem.
Moreover, Insurance agents are pleading on NAICOM to extend this deadline. Speaking on behalf of insurance agents at a press briefing organised by the Association of Registered Insurance Agents of Nigeria(ARIAN) in Lagos, its President, Mr. Ademola Ifagbayi, said, such extension will give more time to underwriters to explore the best option to recapitalise.
Stating that the association fully supports NAICOM move, he believes insurance companies need more time to understand the new recapitalisation model and make a decision on where to play in.
According to him, “ARIAN is in total support of NAICOM on the new tier based insurance recapitalisation exercise. However, we will like to appeal to NAICOM to consider Nigerian Insurers Association(NIA) position in order to make the process easy and convenient for all stakeholders.”
In the same vein, insurance brokers, under the auspices of the Nigerian Council of Registered Insurance Brokers (NCRIB) said it has set up relevant Committees in motion to see the extent to which the new policy thrust would affect insurance brokers in the country.
The President of NCRIB, Mr Shola Tinubu, during the third quarterly press briefing of the council in Yaba, Lagos, said: “On the part of our Council, we have set relevant Committees in motion to see extent to which this new policy thrust would affect our members as the end consumers have begun to express concern as to the implications for them. Anytime the insurers market goes into flux, the broking sector becomes challenged to guide clients to the best affordable security. NCRIB will support our members through these emerging challenges.”
Speaking earlier, deputy commissioner for Insurance, Mr. Sunday Thomas, said, the recapitalsation exercise is aimed at developing and applying appropriate tools that consider the nature, scale and complexity of insurers, as well as non-core activities of insurance groups, to limit significant systemic risk and thereby achieve soundness of insurance companies and contribute to the achievement of stability of the financial system.
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