• Thursday, March 28, 2024
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BusinessDay

Leadway meets new minimum capital requirement-Chapel Hill Denham

Cornerstone Insurance thinking consolidation in the ongoing recapitalisation exercise

Analysis by Chapel Hill Denham Limited shows leadway Assurance Limited topped the list of insurance companies to meet the new minimum capital requirement by the regulator.
Other companies mentioned by the investment bank to scale the hurdles are: Custodian and Allied, Zenith General, First Bank Insurance, and Wapic General.

Analysts at Chapel Hill Denham said they used share capital (plus premium) and retained earnings as qualifying capital in their analysis, but they added that if shareholders’ funds were used, 10 insurers (including Prudential Zenith Life, Custodian Life,Nem, Linkage Assurance and Axa Mansard) would have met the new minimum capital.

“We expect these companies to comply with the regulatory minimum relatively seamlessly via capital injections from significant shareholders or strategic investors,” said analysts at Chapel Hill Denham.

“We believe the insurers that are able to meet the capital requirement well ahead of the deadline will be the winners in the recapitalisation exercise,” said the analysts.
Expert say it is unsurprising that Leadway Assurance top the list of companies to effortlessly scale the hurdle as the insurer has the capacity or financial strength to absorb smaller players in the industry.

For instance, Leadway’s shareholders’ fund of N46.49 billion as at December 2018 is 22.56 percent of the cumulative (N206.15 billion) figure of 15 companies compiled by BusinessDay.

Its gross premium income of N84.13 billion as at December 2018 is 25.01 percnt of the cumulative figure of N315.08 billion revenues raked in by firms under the coverage of BusinessDay.

LeadyWay’s combined ratio of 57.47 percent, which less than the 100 percent threshold, is the lowest in the industry; this means it is the most efficient insurer in Africa’s largest economy.

National Insurance Commission (NAICOM) has jerked up the capital bases of insurer so that they can take on more risk and accelerate contribution to the economy.

The new capital requirement took effect on 20 May 2019 with existing insurance and reinsurance companies expected to fully comply by 30 June 2020.

In a July 23 circular, the regulator mandated operators to submit their recapitalisation plan on or before 20 August 2019.

The Insurance Act 2003 stipulates the consequences of not meeting up with the minimum paid up capital and actions to be taken by NAICOM.

These are: (i) Cancellation of the registration of any insurer or reinsurer that fails to satisfy the capital provisions as it relates to the category of operations of such insurer or reinsurer.

(ii) Publication of a list of insurers and reinsurers that comply with the capital provisions. Such list may be published not more than 30 days after the deadline stipulated by NAICOM, which is 30 days after 30 June 2020 if the date is not shifted for the new capital policy.

Insurers in Africa’s largest economy have begun a race to recapitalize ahead of the NAICOM deadline.

Wapic Insurance Plc seeking funds via capital injection from majority shareholders, but its General Business is well capitalized, while Life segment needs more money.

“The regulator could withdraw the operating licence of companies that fail to recapitalize,” said Seyi Olusi, Chief Finance Officer of Wapic insurance.

Ganiu Safiu, Actuarial Scientist at Cornerstone Insurance Plc said his company is trying to restructure from within and that they are planning of raising capital via the stock market.
Some insurance companies had been proactive as they had opted for equity capital raising.

Mutual Benefits raised N1.59 billion via rights issue in 2018 (79.5 percent of the N2bn offered) while Sovereign Trust Insurance also recently conducted a rights issue of 4.2 billion ordinary shares at 50kobo/share (1 for 2) to raise N2.1bn.

Foreign investors from Europe, America, and South Africa are directing their reserve funds into Nigerian insurance market to take advantage of new capital regime and indigenous firms’ inability to tap the capital market for funds.

 

BALA AUGIE