Insurance brokers’ preference for companies with stronger capital base is driving the direction of businesses to underwriters in the 2021 renewal season.
The brokers, who control 70 percent of total market share as major intermediary in insurance businesses, are playing safe, giving their businesses to insurers who they believe will not have issues in new regulatory capital.
BusinessDay investigation shows that though the recapitalisation exercise embarked on by the industry has been halted by a court order instituted by a set of shareholders, this is playing a key role in the direction of business this year.
“It is true that the recapitalisation exercise has been halted by a court order, but brokers are using the outcome so far to measure which companies to give business,” said an insurance CEO who does not want his name mentioned.
“The brokers will want to play safe. They will not want to give business to companies they cannot guarantee their survival in the new capital requirement, or that cannot be able to pay claims when risk crystallises,” the CEO said.
According to him, recapitalisation is halted but it is determining brokers ‘ choice for business placement in the 2021 renewal season.
Read also: Insurance recapitalisation, though halted inspired confidence in consumers: Orimolade
The CEO also noted that though the recapitalisation exercise is halted at the moment, forward-looking insurers are not resting on their oars to make sure they complete their capital requirements on schedule.
“For us in our own organisation, we are going ahead to finish the recapitalisation plan irrespective of the court order. After all, it is for our own advantage,” the CEO said.
Fatai Adegbenro, executive secretary, Nigerian Council of Registered Insurance Brokers (NCRIB), in a telephone interview with BusinessDay, said he was not sure that the recapitalisation would affect business placement since no company has been declared failed or bankrupt.
He, however, noted that it is within the professional dictates of the insurance brokers to place their business (risks) with underwriters that have the capacity to serve their clients well, which is being able to pay claims when it arises.
Justice Aneke of the Lagos Division of the Federal High Court had on December 21, 2020 restrained the National Insurance Commission (NAICOM) from taking any further steps in implementing its deadline date for insurance and reinsurance companies recapitalisation exercise.
The judge had delivered the ruling in an ex-parte application brought before the court by the Incorporated Trustees of the Pragmatic Shareholders’ Association of Nigeria.
In the motion, marked FHC/L/CS/1797/2020, filed on December 15, 2020, and moved on behalf of the group by their lawyer, I.C. Ifedora, the applicant prayed the court for an order of interim injunction restraining the defendant and its agents from taking further steps in the recapitalisation process in the insurance industry pending the hearing and determination of its motion on notice before the court.
NAICOM had on June 3, 2020, extended insurance companies recapitalisation deadline to September 30, 2021, with first phase to end December 31, 2020.
NAICOM said the segmentation of minimum paid-up share capital requirement for Insurance and Reinsurance Companies will run in two phases as follows: 50 percent of the minimum paid-up capital for insurance and 60 percent for reinsurance shall be met by December 31, 2020, while they will be required to fully comply with approved minimum paid up capital not later than September 30, 2021.
The segmentation shows life companies operating currently with N2 billion will increase to N4 billion as first phase and N8 billion in the second phase; general business companies operating currently with N3 billion will increase to N5 billion as first phase and N10 billion by second phase; composite business operating currently with N5 billion will increase to N9 billion at first phase, and N18 billion at second phase; while reinsurance companies currently with N10 billion will increase to N12 billion as first phase and N20 billion in second phase.
