BY ZAKA KHALIQ, Lagos |
Six weeks to the December 31 deadline given to insurance and reinsurance companies to attain 50 per cent new capital threshold, only 21 insurance firms out of 58 have so far met the mandate, LEADERSHIP can exclusively reveal.
Of the said number, it was learnt that seven of them have fully recapitalised, while the remaining 14 companies have attained the 50 per cent capitalisation as required by the industry regulator, the National Insurance Commission (NAICOM).
NAICOM had earlier ordered insurance firms with composite license to upgrade their capital base from N5 billion to N18 billion.
Life insurance firms were required to increase their minimum capital requirement from N2billion to N8billion, amounting to 400 per cent increase in their capitalisation.
General insurance companies are to raise their capital base to N10billion from N3billion, even as Reinsurance Firms will now need N20billion capital base to operate Reinsurance business in the country.
Similarly, NAICOM had earlier extended the deadline for insurance and reinsurance companies to meet its new capital requirements to September 30, 2021 from December 31, 2020.
To this end, the regulatory body mandated that 50 per cent of the minimum paid-up capital for insurance and 60 per cent for reinsurance must be met by 31 December 2020.
Although the names of those involved are still scanty as of the time of writing this report, there are indications that FBN Insurance Limited, AXA Mansard Insurance Plc, among others, have fully recapitalised.
LEADERSHIP investigations also revealed that Leadway Assurance Company Limited, AIICO Insurance, LASACO Assurance, Consolidated Hallmark Insurance, Sunu Assurance Nigeria Plc, Unitrust Insurance Company Limited, Allianz Nigeria Insurance, NEM Insurance, Universal Insurance, among others, have met and some surpassed the 50 per cent capital regulatory threshold as at the weekend.
Insider sources revealed that 14 other insurers are on the verge of meeting the 50 per cent new capital threshold and could meet up in the next three weeks or so, while the remaining 23 underwriters are still lagging behind, as they continue to struggle to convince new investors to boost their capitalisation to the new benchmark in the ongoing exercise.
Most of the underwriting firms in this category, it was learnt, were in a precarious financial position, with some of them owing huge unpaid claims, unpaid salaries, among other huge liabilities, hence, may struggle to fully recapitalised by September, 2021.
Reacting to the development at the Insurance Industry Professional Forum in Abeokuta, Ogun State recently, the commissioner for Insurance, Mr Sunday Thomas, charged underwriting firms to speed up the process of recapitalisation as the regulatory body has been magnanimous to extend the previous deadline to give more time to operators to source funding for recapitalisation.
He said the coronavirus pandemic and its impact on insurance business was the main reason for granting the earlier extension, hoping the operators make judicious use of the opportunity.
Earlier, some managers of some insurance companies were appealing to NAICOM to waive the first phase of its segmented recapitalisation for the insurance and reinsurance companies scheduled to end by December 31, 2020.
Managers of insurance firms who spoke during the meeting of insurance companies’ CEOs with the commissioner for Insurance at the industry’s professional forum urged the regulatory body to consider their challenges by amending some of the requirements in the recapitalisation exercise in the sector.
They said the support of the regulator would assist to build strong underwriting companies and boost investors’ confidence in the sector.
Some of the executives who attended the meeting disclosed that they made a request for the recapitalisation exercise process to be concluded in December 2021, while the interim milestone assessment scheduled for December be stepped down.
The operators acknowledged the huge impact of COVID-19 on the financial services sector and the national economy at large, coupled with the situation that was worsened by losses from the nationwide #EndSARS protests.
“The waiver will give the insurance and reinsurance companies more time to settle back to business and pursue their full recapitalisation programme in order to meet the commission’s set objectives by 31 December, 2021,” an anonymous operator said.
Speaking at a conference in Lagos recently, the chairman, Mutual Benefits Assurance Plc, Dr Akin Ogunbiyi, said insurance is a business of pools, hence no serious need for industry-induced recapitalisation, stating that players should be allowed to recapitalise individually according to the risk they want to absorb.
Moreover, he said the ongoing recapitalisation exercise is also creating opportunity for foreign investors to take over local underwriting firms for peanuts, especially with the volatility in the forex market which favours dollar at the expense of the Nigerian naira.
“Most of these investors are coming in with dollars and will buy these companies in Naira term while using the current share price, which is already a disadvantage to local underwriters,” he stated.
Stressing that the coronavirus pandemic has affected negatively the ability of insurance companies to raise funds to recapitalise ahead of time, he called for more time to allow the industry outgrow the impact of the pandemic by giving more time to them to recapitalise.
Financial assets such as debt and equity instruments as well as money market and equity funds, he said, are returning low yield and that as a result of the prevailing unfavourable investment climate, capital preservation yields are not as profitable as before.
With inflation at 13.9 per cent, he said one loses money in real terms, even as the fixed income may guarantee cash flows, but profitability is negative.
He stated: “How then do we guarantee adequate return on investment in the Insurance Industry? Can the new regulatory-induced recapitalisation guarantee it? If the worth of a company is a function of its performance, will there be a positive correlation between recapilisation, growth and profitability?
“We can achieve adequate return on investment and capital adequacy ratio through support and patronage of the Nigerian Insurance industry by government at all levels and reduction of sharp practices to its barest minimum. We can accumulate retain earnings and shareholders’ funds on a sustainable basis through good corporate governance and adaptive leaders that recognize and respond to insurance needs and relevant adjacencies.”