If what makes up the new minimum capital requirement being demanded of insurance companies in Nigeria by the industry regulator, the National Insurance Commission (NAICOM), is paid-up share capital plus retained earnings, the industry will be looking for an estimated N271 billion, BusinessDay analysis reveals.
This would be the case if the 59 life and general insurance/reinsurance companies currently operating in the country decide to remain as individual entities after the June 30, 2020 deadline without considering options of mergers or acquisition.
But as it stands, there are only about four insurance companies that may not look for new capital if they decide to alternate capital within their life and general business portfolios, further analysis reveals.
As such, Femi Olusina, an insurance broker, said it was important for the operators to start immediately to talk to each other on possible mergers and acquisition because time was not on their side.
“It is easy to think that one year deadline is too long, but before you know it, June 30, 2020 is here,” he said.
NAICOM had in a circular issued on Monday, May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; general business from N3 billion to N10 billion; composite business from N5 billion to N18 billion; and reinsurance companies from N10 billion to N20 billion.
According to the commission, the minimum paid-up share capital requirement would take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies would be required to fully comply not later than June 30, 2020.
But among industry operators, there seems to be no clarity yet as to what the components of the capital are, BusinessDay gathered.
Tope Smart, chairman, Nigerian Insurers Association (NIA), said during the association’s annual general meeting in Lagos that the body was engaging the regulator for clarity on the capital requirement as well as palliatives to enable the exercise run without much hitches.
There is also confusion and apprehension in the industry as some companies that have huge negative retained earnings do not know yet what the new requirement implies on their existing paid-up capital, BusinessDay further learnt.
A senior official in NAICOM who did not want to be named, however, said the issue of negative retained earnings was a special case and would be treated according to its situation.
The official, who failed to provide clarification on what the actual components of the new capital are, noted that the paid-up share capital was the same everywhere and that those concerned know.
Contrary to the Nigerian scenario, Ghana, the country’s next-door neighbour, also came up with new capital requirement for its insurance industry, but specifically expects operators to meet the new requirements through fresh capital (cash) injection, capitalisation of audited profits (retained earnings) and or a combination of the above options.
The Ghana insurance authority had said in a statement that insurance companies operating life and non-life (composite) are to increase their new minimum capital requirement from initial GHC15 million ($2.75 million) to GHC50 million ($9.28 million), while reinsurance companies initially operating with GHC40 million ($7.43 million) are to increase theirs to GHC125 million ($23.21 million).
Insurance broking companies and loss adjusters’ capital base was also increased from GHC300,000 to GHC500,000, while reinsurance brokers’ capital base remains at GHC1 million. The recapitalisation commencement date is June 30, 2019 while the deadline is fixed for June 30, 2021.
Analysts say given the size of Nigeria’s economy and the opportunities it offers, it is time to recapitalise the insurance sector.
Herbert Wigwe, managing director/CEO, Access Bank plc, said at the recently concluded 2019 National Insurance Conference in Abuja that relative to the size of the Nigerian economy and the opportunities it offers, the insurance sector needs serious capitalisation to increase its capacity to underwrite transactions in sectors such as the oil and gas, marine, aviation, technology, etc.
He noted that the increasing the minimum capital for the insurance industry by over 200 percent was necessary.
“Whilst this will go a long way towards repositioning the insurance sector in terms of product offerings and customer experience, the sector must grow big enough to provide cover for huge exposures,” he said.
MODESTUS ANAESORONYE
