The recapitalisation of Nigerian banks has put insurers on notice as shareholders foresee pressure to embark on a new capital raise in no distant time.
The shareholders said if the proposed bill on insurance industry in the Senate scales through at this time, the possibility of demanding insurers to raise capital will not be far away.
They urged insurance companies to put on their thinking caps by fashioning out strategies to raise funds ahead of any regulatory pronouncement, noting that the best time for recapitalisation is now.
Sunny Nwosu, shareholder emeritus who spoke at an insurance company’s annual general meeting (AGM) held in Lagos said, “You must start to plan on how to raise your capital because it must come with what I have read concerning the new proposed bill.”
Nwosu said it will not be easy for insurers to enter the same market with banks in search of investors, noting that insurers must get their strategies right.
Boniface Okezie, national coordinator, Progressive Shareholders Association of Nigeria (PSAN), identified the need for insurers to begin to build reserves for a stronger capacity.
“Insurance companies must begin to look in to the future with respect to recapitalisation so that no one is taken unaware when the time comes,” he said.
Insurance companies in Nigeria may be facing a new minimum capital requirement in excess of 650 percent if the insurance bill scales through at the National Assembly.
The new bill entitled, ‘Nigeria Insurance Industry Reform Bill 2024,’ which has scaled the second reading at the floor of the Senate, seeks to increase the minimum capital requirement of life insurance companies from the current N2 billion to N15 billion, and general business from N3 billion to N25 billion. Reinsurance business’ capital will move from N10 billion to N45 billion, according to the proposed bill seen by BusinessDay.
The Nigeria Insurance Industry Reform Bill 2024 (SB 393), is sponsored by Mukhail Adetokunbo Abiru, chairman, Senate Committee on Banking, Insurance and other Financial Institutions alongside 41 other senators.
Senator Abiru, in his lead debate on the floor of the Senate, outlined the bill’s objective to establish a comprehensive legal framework for regulating and supervising all types of insurance businesses in Nigeria.
He emphasised the critical need to address the low penetration of insurance services in the country, which stands at a mere 0.5 percent, ranking 70th globally and 5th in Africa.
Abiru, an economist and former bank chief executive, highlighted Nigeria’s young and vibrant population and growing gross domestic product (GDP) as indicators of the industry’s potential for exponential growth.
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Stephen Alangbo, managing director/CEO, Cornerstone Insurance Plc, speaking on the company’s plans for the future said, “We are well positioned for any recapitalisation measures the regulator may introduce. We believe that this will enhance our financial stability, expand our underwriting capacity, and allow us to invest in new technologies and innovative products.”
Alangbo said it will also help the industry to attract top talent, deliver robust returns to shareholders, and support community development initiatives while ensuring the provision of greater value to all our stakeholders.
Session 15 (1), of the new bill states that a person shall not carry on insurance business in Nigeria unless the insurer has and maintains while carrying on that business, a minimum capital in the case of non-life insurance business, the higher of N25 million or risk-based capital determined from time to time by the Commission.
In the case of life assurance business, the capital must be a higher of N15 million or risk-based capital determined from time to time by the Commission. For the reinsurance business, it is the higher of N45 million and risk-based capital determined from time to time by the Commission.
In determining the risk-based capital required, the National Insurance Commission (NAICOM) shall take into consideration the capital for insurance risk, market risk, credit risk and operational risk while applying such capital charges on assets and liabilities as shall be determined from time to time.
“For the purpose of this section, “‘Capital charge’ means the proportion of capital required to take care of the potential deterioration of the economic value of an asset and the uncertainty in estimating liability due to the occurrence of an adverse event.”
The minimum capital requirement specified in subsection (1) of this section may in the case of a new company consisting of one or more government bonds and treasury bills, while the minimum capital requirement as specified in subsection (1) of this section shall, in the case of an existing company, consist of one or more of the excess of assets over liabilities, less the amount of own shares held by the firm; and minimum capital requirements; subordinated liabilities subject to approval by the Commission; and any other financial instrument as may be prescribed by the Commission from time to time, the bill further says.
“An insurer registered before the commencement of this Bill shall comply with the foregoing requirement within 12 months of the commencement of this Bill.
“The Commission shall cancel the registration of any insurer or reinsurer that fails to satisfy the provisions of subsection (2) of this section as it relates to the category of operation of such insurer or reinsurer; and not later than 30 days after expiration of the period specified in subsection (4) of this section, publish a list of all insurers that have complied with the provisions of this section.”
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