The earlier apprehension and shock that greeted the announcement of a new minimum paid-up share capital requirement for insurance and reinsurance companies in Nigeria by the National Insurance Commission (NAICOM) has faded.
Currently, operators are looking at the positives and what the impact will be on the growth and development of the industry when the exercise is concluded, particularly as the wind of recapitalisation is sweeping across markets and the financial services industry in Africa.
Realising the need for greater capacity having witnessed capital erosion over time as a result of foreign exchange weakening, industry players say they are poised to comply.
Eddie Efekoha, chairman, Insurance Industry Consultative Council (IICC), said on Friday that the wind of recapitalisation was sweeping across markets, including Ghana, Morocco, Kenya and even the banking industry in Nigeria.
He pointed out that all of this has been as a result of weakened capital over foreign exchange crisis and inability of operating companies to pay good dividend to shareholders, saying NAICOM should be commended for being proactive in kick-starting the exercise in Nigeria’s insurance industry.
“If the exchange rate has weakened, that means we do not have the same power as we had in 2007 when we had the last recapitalisation, meaning we need more capital,” Efekoha said.
NAICOM had on May 20, 2019 announced new minimum paid-up share capital for the insurance industry, requiring companies that want to remain in life business to raise their minimum paid-up capital base from N2 billion to N8 billion; general insurance companies from N3 billion to N10 billion; composite insurance companies from N5 billion to N18 billion, and reinsurance companies from N10 billion to N20 billion. The insurers were given June 30, 2020 as deadline for the exercise.
Efekoha further said operators would not go against the regulator because the consequences would be grievous. Rather, he said, the operators would work with the regulator to see what palliatives they could get to have the exercise completed successfully.
“I see a stronger industry, I see a more disciplined market, I see an industry that will better reward shareholders, and I also see stronger competition without rate cutting,” he said.
Tope Smart, chairman, Nigerian Insurers Association (NIA), said the leadership of the NIA was engaging NAICOM in that regard. He said the association was working closely with NAICOM to promote the business of insurance and increase its contribution to national GDP.
“We have started engaging the National Insurance Commission with a view to defining the components of the new capital level as well as the incentives and palliatives that members will enjoy to ensure that as many companies as possible scale through,” Smart said.
He urged the association members to contact the secretariat if they face challenges and also for updates.
“On our part, we will continue to update you as we make progress in our engagements with the commission,” he said.
Owolabi Salami, executive director, Allianz Nigeria, said the regulator was clear this time in its communication about the new minimum capital requirement.
According to him, additional capital is needed to grow insurance business in Nigeria. Insurers need to spend money to create awareness, communicate the value and benefits of insurance, and it is only when they have done this judiciously and consistently for a long time that they can begin to expect people to understand what insurers do and patronise them, he said.
Salami, who looked at advertising spend in other businesses including telecommunication and banking, noted that insurers had not spent enough to get consumers’ attention and that was part of what additional capital will do.
He also noted that the exercise, when completed, would strengthen capacities of companies, bring the right chief executives that will bring value for their investors, and bring real competition and discipline into the business.