Local and foreign investors looking to come into the Nigerian insurance industry now have a window of opportunity with the announcement of a new minimum paid-up share capital requirement for insurance and reinsurance companies.
National Insurance Commission (NAICOM), the insurance industry regulator, last Monday increased 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 a circular signed by Pius Agbola, director, policy and regulation directorate, on behalf of the Commissioner for Insurance.
With this development, deep pocket investors now have on a platter of gold the opportunity to acquire both life and non-life companies in the new capital regime given the paucity of funds in the economy and the capital market, where a lot of the insurers would have hoped to take advantage.
Besides, retail investors in the capital market who have not realised good yields and returns on their investment over a long time, particularly since the last insurance industry recapitalisation between 2005 and 2007, are wary of putting more money into insurance stocks.
The chances for the deep pocket investors are further widened since about 41 out of the 51 registered insurance companies may need external funding to meet the minimum paid-up share capital requirement, according to industry analysts.
“Why should we the retail investors continue to put money in insurance companies when we are not getting returns and some companies have not paid any dividend at all,” said Sunny Nwosu, national president, Independent Shareholders Association of Nigeria, faulting NAICOM’s decision to increase capital requirement at this time.
Nwosu who has, however, changed his earlier position to mobilise shareholders against the recapitalisation exercise, urged insurance companies to rise to the challenge and recapitalise to avoid takeover.
“You must brace up to the challenge to avoid being caught napping like some banks during the recently concluded examination by the Central Bank of Nigeria,” Nwosu said the Annual General Meeting of an insurance firm.
An insurance chief executive who was not against the decision of NAICOM to increase the capital base of insurance companies said the industry was in need of big companies to drive growth.
“We really need big companies here to experience the kind of competition we anticipate to enable growth happen in the industry. Again, the number of operating companies is much with so many weak and fringe players; this will no doubt clean up the industry for real business,” the chief executive, who asked not to be named, said.
“No doubt, this is a tough time to raise funds from the capital market given the state of the economy, and again, given the poor yields and returns insurance companies have made to shareholders over time. This is not likely going to be attractive for retail investors. I see quite a number of the insurance companies taking to merger to remain in business, otherwise they may be consumed,” said the chief executive.
Mohammed Kari, commissioner for insurance/CEO of NAICOM, had said that the Nigeria’s Development Plan 2020 described the country’s insurance sector as a “gross untapped opportunity” with low market penetration.
According to him, the foreign investors, having noted these great opportunities, are attracted by the huge potential in the Nigerian insurance space.
“These investors are ready to position themselves for the future,” Kari said.
He said it was the same potential that attracted the likes of AXA Mansard, Prudential, Liberty, Swiss RE, Sunu Group, Saham, and Allianz, who have all taken position in the industry and in partnership with indigenous companies for development and growth.
NAICOM, in increased the minimum paid-up share capital of insurance and reinsurance companies in the country, had given them deadline of June 30, 2020 for compliance.
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 would be required to fully comply not later than June 30, 2020.
“In the exercise of the powers conferred on the Commission by the enabling laws, the minimum paid-up share capital requirement of insurance and reinsurance companies in Nigeria is hereby reviewed,” the circular said.
According to the circular, this would apply to insurance and reinsurance companies other than Takaful operators and micro insurance companies.
“The provision in respect of requirement of the statutory deposits as stipulated in Part III, section 10 of the Insurance Act 2003 shall apply on the effective date of commencement of the circular,” it said.
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