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As Insurers Brace Up For Recapitalisation



Insurance companies are currently bracing up to meet the October 1st deadline to recapitalise in the new  Tier-Based Minimum Solvency Capital regime introduced by the government, ZAKA ABD-KHALIQ writes.

When the National Insurance Commission (NAICOM) announced a shift back in the January 1st, 2019 deadline given to insurance companies to recapitalise to October 1st, 2018, it took most operators by surprise.

This is because the earlier deadline was not conformable to most insurers and had pleaded for extension only to wake up to realise that the deadline is even closer than expected.

To this end, the companies had to summon an emergency meeting of their boards to discuss on how to raise the needed capital to play in their respective favoured Tier.

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.

NAICOM had earlier issued a circular 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.

The reason for change in deadline date, it was learnt, was to enable underwriters seal reinsurance treaties in line with the new policy.

A source said  the new date was picked because most underwriters will by October begin to seek or renew their reinsurance treaties. It was also learnt that the step was taken to forestall firms from entering new treaties with their present positions which will be changed by the expected regime.

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 increase 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.

Prospective Tier One Players

NSIA Insurance Limited, while applauding the regulatory body on its efforts to develop and deepen insurance market with the introduction of Tier-Based Minimum Solvency Requirement (TBMSR) model, promised to play in Tier One Category.

In a bid to achieve this, NSIA Insurance had, in Year 2017, started the process to increase its capital base which incidentally is very much in line with the recent move by NAICOM to develop and deepen the insurance market with the introduction of this recapitalisation model. This proactive effort will now qualify the company to operate in Tier One with the capital capacity to underwrite all classes of risk.

In a similar vain, FBNInsurance Limited has shown interest to be a Tier One player.

The MD/ CEO, FBNInsurance limited, Mr. Val Ojumah said, while the development will help to reposition the industry financially, he added that his underwriting firm has mapped out strategy to operate in this category.

The MD/CEO, Leadway Assurance Company Limited, Mr.  Oye Hassan-Odukale, said the firm would be playing in the Tier One category when the new model finally kicks off.

Veritas Kapital Assurance PLC, though now a Tier Two operator, is aspiring to be a Tier One player which would allow the company underwrite all risks.

Custodian Insurance, among others, are keen admirers of this Tier One license.

Other Players

For a Life insurer willing to play in the Tier 2 segment, it is to be recapitalised to the tune of N3 billion which qualifies such insurer to underwrite Group Life Assurance (GLA), Individual Life, Health Insurance and Miscellaneous Insurances.

To be a non-life insurer in Tier 2 segment, such players must be capitalized to the tune of N4.5 billion, hence, qualifies to underwrite Engineering (All inclusive), Marine, Bonds Credit Guarantee and Suretyship Insurances, Individual Life, Health Insurance and Miscellaneous Insurances.

However, for a composite insurer willing to underwrite Engineering (All inclusive), Marine, Bonds Credit Guarantee and Suretyship Insurances, Individual Life, Health Insurance, Miscellaneous Insurances and Group Life Assurance (GLA), it must have N7.5 billion capitalisation.

On the other hand, operators who could not recapitalise before the deadline date automatically fall under the Tier three category. They are to maintain the current capital base even though the businesses they can underwrite are limited.

For instance,  a life insurer with N2 billion capital  base only qualifies to write Individual Life, Health Insurance and Miscellaneous Insurances, whereas, non-life insurer under Tier 3 with N3 billion capitalization qualifies to underwrite Fire, Motor, Engineering (only classes covered by compulsory insurance), General Accident, Agriculture and Miscellaneous Insurances.

For a composite underwriter whose capitalisation is N5 billion, is entitled to writes all non-life and life risks under Tier 3 category.

Moving Forward

Mr. Hassan-Odukale, who is also the Chairman of the Sub-Committee on Publicity and Communication of the industry’s Insurers’ Committee, believes the introduction of the solvency requirement for insurers in Nigeria will help to restructure the market in a way that insurers can choose which part of the consumer segment (retail, commercial or industrial) is best served based on the capital fund that it holds or is able to deploy.

He stated that with this restructuring, insurers do not have to be compelled to increase capital to underwrite risks that stress their capital without delivering commensurate returns to capital providers/shareholders. He believes that the restricting will foster the emergence of players with capacity to become retail specialists or become specialist underwriters of big-ticket risks in critical sectors of the economy, such as the aviation and oil & gas, whilst accelerating the growth of the industry and its contributions to the Gross Domestic Product (GDP) of the country.

Other experts believe stronger underwriters will emerge after this recapitalisation which will increase the capacity of the insurance industry to absorb large risks, thereby, avoiding premium flight in which foreign insurers dominate the big ticket risks because of their huge capitalisation.

Last week, NAICOM sponsored an advertorial in some daily newspapers, urging intending investors willing to acquire Tier One fresh license to come forward with their applications.

The regulatory body had, in the last 10 years, placed embargo on  issuance of fresh licenses, advising intending investors to buy into the existing ones.

However, with its 3 -tier based recapitalisation of  the insurance industry, expected to fully kick-off on 1st of October, 2018, NAICOM is now set to issue fresh licenses to would-be big players in the nation’s insurance sector of the economy.

Findings show that interested applicants for the Tier 1 license must have his insurer capitalised to the tune N15 billion to operate a composite insurance firm, with N9 billion capital base needed to float Non-Life company under this Tier, even as a sum of N6 billion capitalisation is needed to get a new Life insurance license when the regulator lift embargo on issuance of new license next year.

Confirming this development, the director, Supervision, NAICOM, Mr, Barineka Thompson, said the commission had refused to grant new licenses before now, to allow investors buy into some of the existing underwriters and make the insurance industry stronger.

According to him, “In the last 9 to 10 years, we have not issued any licenses but we will open it up for any investor willing to play in Tier 1, as soon as the Risk Based categorisation commences.”




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