The recapitalisation, which was kicked off four years ago to enhance the capacity of the insurance sector to increase its contribution to the economy and enable players to underwrite big ticket risks, has hit a brick wall.
A court ruling on July 14, 2022 barred the National Insurance Commission (NAICOM) from increasing the solvency capital base of insurance companies.
The Federal High Court in Lagos held that NAICOM cannot increase the statutory minimum solvency capital policy for insurance companies without the National Assembly amending the Insurance Act and Regulation 2003.
Justice Chukwujeku Aneke directed NAICOM to reverse itself on the increase in the statutory minimum solvency capital policy for insurance companies.
He held that the directives/guidelines/circular on capital base increase offends Section 4 of the 1999 Constitution and Section 9 of the Insurance Act and Regulation 2003.
The court made the orders in a suit marked FHC/L/CS/1518/18 between Tope Alabi as the plaintiff and NAICOM and the Attorney-General of the Federation as first and second defendants.
The suit followed NAICOM’s announcement in 2018 that it planned to release the guidelines for the implementation of the minimum solvency capital policy in August 2018, while implementation was meant to take effect from January 1, 2019.
The plaintiff averred that it prescribed tier-based minimum solvency capital for insurances on the bases of their respective risks profiles and their risks management systems.
On September 28, 2018, the plaintiff filed an originating summons in which he sought the determination of whether NAICOM can unilaterally increase the statutory minimum solvency capital policy for insurance firms “as contained in Section 9 of the Insurance Act and Regulation 2003, by a mere circular without an amendment to the enabling statute by the National Assembly to increase such capital base.
“Whether the increase in the statutory minimum solvency capital policy for all insurance companies and the short or inadequate time within which to comply was not steps taken by the 1st defendant in bad faith.”
When contacted by BusinessDay, a director at NAICOM says the commission was not going to respond to the ruling. “We are not going to comment on the court ruling,” the officer said.
Adetola Adegbayi, chairman of Nigeria Liability Insurance Pool, emphasised the benefits of concluding the recapitalisation exercise, saying it was meant to help the industry build capacity for big-ticket risks.
“The successful conclusion of the aborted recapitalisation exercise in the insurance industry would open more opportunities for growth and enhance the contribution of the industry to the economy,” she said.
She therefore called on the government to come up with policies that galvanise the strength and build capacity for the nation’s risk management industry to be able to underwrite big-ticket risks.
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“Government needs to make new progressive policies that will galvanise all players, reactivate and conclude the recapitalisation exercise, which will increase the capacity of the industry and allow big-ticket transactions to be underwritten,” Adegbayi said.
Chika Onwunali, managing consultant at Premium Debate, said the exercise had ended abruptly after several attempts by the commission to restructure it. “But the effect is that we will continue to have fringe players, and that does not help the industry,” he added.
According to him, the recapitalisation exercise was going to help the industry retain many of the risks locally and achieve national content development goals, but unfortunately this did not happen.
While the tier-based solvency capitalisation policy was halted, NAICOM, on July 19, 2020, in a circular to all insurance and reinsurance companies, signed by Pius Agbola, director, Policy and Regulation Directorate, announced new paid-up share capital.
Under the new capital regime, life insurance companies operating with N2 billion were directed to increase it to N8 billion; general business, from N3 billion to N10 billion; composite insurers, from N5 billion to N18 billion; and reinsurance firms, from N10 billion to N20 billion.
At the time, a group of shareholders (Incorporated Standard Shareholders Association) took NAICOM to court again to stop the new exercise, alleging that the exercise was going to neutralise their shareholding in the insurance companies.
Talmiz Usman, legal adviser, NAICOM in a letter titled: ‘Re: Segmentation of minimum paid-up share capital of insurance companies in Nigeria: Appeal for waiver of December 2020 milestone’, and addressed to the director-general of the NIA, said: “This is to acknowledge the receipt of your letter in respect of the above, and to inform you that the matter is currently sub judice.”
