The 2020 renewal season has set in, and major insurance brokers in the market are weighing the risks level of underwriting firms and restructuring their portfolios in line with ongoing recapitalisation exercise in the sector.
The brokers, BusinessDay gathered, are critically looking at each underwriter’s recapitalisation plan to be sure they place business with only those that will scale through the exercise come June 30 next year.
Renewal season is a time insurance brokers select underwriters for their different customers and make risk placement for the new year.
BusinessDay learnt that underwriters are also busy lobbying brokers on new accounts and renewal of existing business. They are also arranging their reinsurance treaties with major reinsurance companies locally and internationally.
However, while there is the issue of recapitalisation, what many fear at this period of renewal is the issue of ‘rate cutting’, largely described as endemic in the industry.
Pricing is a big challenge for the market, one underwriter told BusinessDay, but said they are committed to defining the direction because the firm is not going to accept risk not appropriately priced.
“We must be selective, but not to be too selective to the extent of endangering the life and survival of the smaller companies,” Rotimi Edu, executive vice chairman, Qicklink Insurance Brokers, said on phone in response to BusinessDay questions.
“We must be careful not to starve the smaller companies of the businesses they need to survive; after all we are expecting mergers, and you cannot be sure until the exercise is completed,” Edu said. “You will be surprised that those companies you think will not scale through will raise the money and recapitalise.”
Edu, who said the recapitalisation exercise is good for the industry, noted, however, that it must be carefully conducted. He called on the government to handle it with care so that the industry can be protected.
“I expect that the exercise will be reviewed after six months, and if there are chances that some companies can still make it, they should be given additional time, say, three months or more to meet up,” he said.
Fatai Adegbenro, executive secretary, Nigerian Council of Registered Insurance Brokers (NCRIB), said brokers believe in the intent of the recapitalisation exercise – building capacity and market development.
Adegbenro said there is no cause for concern, but urged brokers to continue to monitor progress report from NAICOM, which is the overall regulator, to know what each company is doing and who has complied.
According to him, what brokers should be looking for is the security of their client’s assets, so that meeting claims obligation would not be a challenge.
He, however, advised underwriters to consider mergers for stronger capacity, as it is in the overall interest of the market to have bigger and stronger institutions.
NAICOM had on 20th May 2019 increased the minimum paid-up share capital of insurance companies in Nigeria to as much as 300 percent, requiring the existing 59 underwriting firms to shop for new capital or restructure portfolios.
In the new capital regime, life companies’ capital was increased 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 shall take effect from the commencement date of May 20, 2019 for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than June 30, 2020.
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