The National Insurance Commission (NAICOM) says it will as much as possible avoid going into liquidation of failed companies in the ongoing insurance industry recapitalisation.
The commission said rather than liquidating those that fail to recapitalise, it is considering forced mergers that will make them become one big company.
Sunday Thomas, acting commissioner for insurance/CEO, NAICOM, who dropped the hint during the Insurance Industry 2020 Economic Outlook in Lagos, said the cost of liquidation was high for the commission.
Thomas said NAICOM may apply regulatory forbearance to ensure it does not go through that route at the end of the recapitalisation exercise billed to end on December 31, 2020.
Thomas said the role of the regulator in the recapitalisation is to ensure that there is transparency and certainty of the process, orderliness and level playing ground for all players.
According to him, another priority of the commission is the safety of funds, stating it will ensure that all realised funds in the course of the exercise are domiciled in the Central Bank of Nigeria’s escrow account.
The commission has agreed with the CBN to ensure that the funds will not be in a dormant account, but one that will accrue interest income to the owner institutions, Thomas said.
Liquidation has not been a good experience for the regulator in the history of insurance industry, particularly when a life insurance company is involved.
Amicable Insurance, for instance, was liquidated in the course of the 2005/2007 industry recapitalisation exercise. Being a life company, the situation required that its customers whose policies were yet to mature were transferred to existing companies, and assets were liquidated to settle outstanding liabilities. This was a tough one for the industry as a whole.
Recently also, NAICOM appointed receivership managers for two companies – Investment and Allied Insurance and Spring Life Insurance – which are to go through liquidation, a problem the commission would have loved to avoid.
NAICOM had in a circular issued on 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 took effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies were required to fully comply not later than June 30, 2020. However, the commission recently extended the deadline to December 31, 2020.
Yetunde Ilori, director general, Nigerian Insurers Association (NIA), said the extension of the deadline by NAICOM was a step in the right direction.
By that singular move, she said, the commission has portrayed itself as one with a listening ear, responsive to the yearnings and aspirations of the insurance operators, and shown that the interest of the market is uppermost in its considerations.
She noted that by the extension, insurance companies now have ample time to comply with the directive instead of having to go into the exercise without adequate preparation and diligent execution.
“Now that the commission has provided the needed impetus for members to go about the exercise, it is my appeal that member companies should give the exercise all the seriousness it deserves,” Ilori said.
“We need to appreciate the commission’s gesture by working hard to achieve the recapitalisation threshold set for our various businesses. That way, we will encourage the commission to churn out more market-friendly policies,” she said.
Ilori said the market expects more cheery news from NAICOM by way of palliatives and incentives, especially those that are within its control. She said the cost of the exercise would be too heavy on the companies and any incentive would assist the companies to reduce the cost of recapitalisation and increase shareholder value.
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