The National Insurance Commission (NAICOM) on Tuesday confirmed that three merger deals between six companies are currently going on in the industry’s recapitalisation exercise.
The merger deals are being discussed following NAICOM’s directive to underwriting companies to increase their paid-up share capital by over 300 percent effective May 20, 2019. The commission gave June 30, 2020 as deadline.
BusinessDay last week reported that Unitrust Insurance Company Limited, a Nigerian company, was in merger talks with another local company following the exit of its foreign partners, Saham Group, a pan-African company with origin in Morocco which held a 40 percent equity stake in the local entity.
NAICOM said at an interactive session with shareholder groups in Lagos on Tuesday that the recapitalisation process was on course as the Commission has given 44 companies no objection to their recapitalisation plans, asked six firms to go back and rework their plans, two firms’ submission were still under review, while two were yet to make any submissions.
Meanwhile, in what can be described as a major move to get the support and cooperation of shareholders in the ongoing recapitalisation programme, NAICOM explained the benefits of the exercise to the shareholder groups.
The commission said the recapitalisation exercise would strengthen the capacity of insurance companies to meet their obligations and deliver good returns to shareholders.
Sunday Thomas, acting commissioner for Insurance/CEO, NAICOM, said that one of the benefits of the ongoing recapitalisation is the increase in retention capacity and conservation of foreign exchange.
“A large proportion of the local risks are presently ceded outside because of low retention capacity. High retention means more premiums are retained by the companies,” Thomas said.
Thomas, who was represented by Pius Agbola, a director in NAICOM, said the recapitalisation exercise would lead to more value creation as there would be improved corporate governance oversight as a result of introduction of major players to the industry.
Another benefit, he said, was increase in liquidity and investment funds.
“There will be ability to meet current obligations as they fall due, and also availability of investment funds for higher returns,” he said.
Other benefits include increased ability to hedge against risks arising from macro-economic environment, and capital restructuring.
“The capital base increase through increase in shares subscription would definitely dilute the capital structure of companies, which will bring more transparency and increased oversight,” Thomas said.
He said there was no doubt that insurance in Nigeria has huge growth potential as NAICOM has decided to put more emphasis on market development to enable investors have value for their investment.
“As a stakeholder in ensuring that investors have value for their money, NAICOM has made commitment to develop and deploy appropriate framework for enforcement of compulsory insurances, IT deployment in the insurance sector; risk-based supervision; appropriate and relevant distribution models; improvement in insurance awareness; better corporate governance oversight; effective collaboration with relevant sectors; reduction in the incident of fake insurance as well as effective and monitoring prompt claim payments,” Thomas said.
Suleiman Hassan, head of Financial Guidelines and Corporate Governance at the Securities and Exchange Commission (SEC), told the shareholder groups at the event that SEC would continue to bring reforms that would make the capital market investor-friendly.
He urged the shareholders to take position in insurance stocks, particularly now that most of them are selling below par.
Hassan also gave the assurances of the SEC to collaborate with NAICOM to ensure success of the recapitalisation exercise and protection of the investors’ fund.
NAICOM had asked underwriting companies to increase their paid-up share capital from N2 billion to N8 billion for life companies, from N3 billion to N10 billion for general business, from N5 billion to N18 billion for composite business, and from N10 billion to N20 billion for reinsurance companies.
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