Recapitalisation: Business Restriction Looms For Low Capitalised Insurers

With risk-based recapitalisation expected to commence in insurance industry in 2024, low capitalised insurance companies are expected to face risk business restrictions, LEADERSHIP can now reveal. 

Further findings show that, some brokers are currently refusing to take businesses to underwriters whose solvency margin is low. 

This is even as the gross premium recorded in Nigerian insurance industry rose by N443.3billion within the last 8years, precisely, between 2015 and 2022.

After two failed recapitlisation exercise in insurance industry, between 2007 and now, the insurance industry regulator, that is, the National Insurance Commission (NAICOM) is considering Risk-based capital(RBC) which has been infused into the consolidated insurance bill before the National Assembly (NASS). 

Risk-based capital(RBC) is a method developed by the regulator to determine the minimum amount of capital required of an insurer to support its operations and write coverage.

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The risk-based capitalisation exercise, which, expectedly, will commence next year, is to ensure that underwriters upgrade their capital base in alliance with their risk appetite. 

While this model will not prescribe any uniform capital, low capitalised insurers will face business restriction when the exercise commences. 

Similarly, it was learnt that, high capitalised underwriters would be the only ones writing businesses in highly risked sectors, such as, Oil and Gas, aviation and maritime, even as the low capitalised ones would be restricted low risk businesses. 

Findings shows that, although, there will be minimum capital to operate certain class of business, the current capital of N2 billion, N3 billion, N5 billion for life,non- life, composite companies respectively could still be maintained for those who want to play in the lower end of the market, preferably the retail market, microinsurance and so,on. 

While the last aborted recapitalisation exercise recognised share capital as the base of the exercise, there are indications that the current one may recognise Shareholders Fund as the capital under the exercise, thus, making the new exercise seamless and easier for the big players.

Speaking at the 2023 Retreat For Insurance Journalists themed ‘Improving Stakeholders Perception 2023 and Beyond,’ in Uyo, Akwa-Ibom State at the weekend, the commissioner for Insurance/CEO of NAICOM, Mr. Sunday Thomas, noted that, though, litigation and backlash besieged the last recapitalisation exercise, the next exercise would be seamless as nobody would be pressured into recapitalisation.

The Consolidated Insurance Bills, when signed into law, he said, would have taken care of this exercise, saying, the commission will swing into action as soon as the bill becomes a law. 

Stating that this initiative will enhance soundness and profitability of insurers through optimal capitalisation, even as it introduces proportionate capital that supports the nature of insurance business, he stressed that, complexity of the businesses being conducted by insurers means the industry must undergo risk-based recapitalisation.

While it is expected that there will be no cancellation of license, he said, operators will be subjected to solvency control levels and little or no mandatory injection of fresh capital by insurers.

However, he disclosed that the currently, insurers are on their own, raising up their capital to a certain threshold as set by their respective board, expecting more underwriting firms to follow in this direction. 

Meanwhile, the gross premium of insurance industry grew from N282.9 billion in 2015 to N726.2 billion in 2022, a modest 15 per cent annual growth over this period.  

Similarly, the total assets of the insurance industry equally rose from N917 billion to over N2.3trillion within the same period, according to the assistant director, Corporate Strategy and Special Duties at NAICOM, Dr. Usman Jankara.

Dr Jankara also said, life and non-life premium are both in a growth trajectory, with insurance penetration now at 0.4 per cent of the nation’s Gross Domestic Product(GDP) and an increase in insurance density to 1.5 per cent. 

Claims payout in 2014, he said, also rose from N99.1billion in 2014 to N318.1 billion in 2021.

The commissioner for insurance had earlier said, the numbers are looking up as the sector is doing very much in the area of claims settlement as well as recording high performance in micro insurance products which, he said, is increasing on both supply and enrolment sides.