Twelve years after the last recapitalisation exercise in Nigeria’s insurance industry, insurance companies with composite license will now need to upgrade their capital base from N5billion to N18 billion to continue to underwrite life and non-life insurance businesses in the country, LEADERSHIP learnt.
The new capitalisation, which translates to about 350 percentage increase from the previous capital base, kick starts a fresh recapitalisation exercise in insurance sector of the nation’s economy.
In a circular released and signed by the director, Policy and Regulation Directorate of the National Insurance Commission(NAICOM), Mr. Pius Agboola, yesterday, Life insurance firms were required to increase their minimum capital requirement from N2 billion to N8 billion, amounting to 400 per cent increase in their capitalisation.
Similarly, NAICOM mandates General insurance companies to raise their capital base to N10 billion from N3 billion to continue to exist in insurance industry, even as Reinsurance Firms will now need N20 billion capital base to operate Reinsurance business in the country, unlike N10billion they were operating with, prior to now.
To this end, existing insurance companies now have till June 30, 2020 to recapitalise, while a new insurance firm will need to meet up the new capitalisation before it is issued a license to transact insurance business in the country.
According to the circular, “In 2005/2007, insurance industry witnessed its last recapitalisation and despite the astronomical increase in value of insured assets, consequent exposure to higher level of insured liabilities and operating cost of insurers, the same capital continued to rule in the insurance industry.”
The minimum paid-up share capital requirement of insurance and reinsurance companies in Nigeria, NAICOM said, is now reviewed in the exercise of the power conferred on it by enabling laws.
Stating that the circular only applies to insurance and reinsurance companies, with the exemption of takaful operators and micro insurance companies, it added that the new minimum paid-up share capital requirement shall take effect from May 20, 2019, for new application, while existing insurers and reinsurers shall be required to fully comply not later than June 30, 2020.
“The provision in respect of requirement of statutory deposit as stipulated in Part III, Section 10 of the Insurance Act 2003 shall apply for effective date of commencement of this circular. All insurance and reinsurance companies are required to ensure strict compliance with this circular. The commencement date of this circular shall be May 20, 2019,” it pointed out.
Market observers believe stronger underwriters will emerge after this recapitalisation exercise 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.
Moreover, they expect the recapitalised insurance firms to have enough financial buffer to pay genuine claims when they arise, while giving good returns on investment to their respective shareholders.
In the end, market observers believe the premium income of the industry will rise sporadically, generates more revenue to the government as well as enhance economic growth and development.
NAICOM had in July 2018 announced that the Tier-based recapitalisation exercise will fully take off on January 1st, 2019, a deadline that insurance operators, investors, shareholders and other stakeholders were furious with, thereby, pleading for more time. The regulatory body later shifted back the recapitalisation deadline date from January 1st, 2019 to October 1st, 2018, citing reinsurance treaties which is usually done in November and December as the major reason for changing the deadline backward.
And in October, the commission announced suspension of the policy because of the court case, before it finally cancelled it.
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