…as bill scraps composite business
Insurance companies in Nigeria will be facing a new minimum capital requirement in excess of 650 percent if a new proposed industry bill on the floor of the National Assembly scales through.
The new bill titled, ‘Nigeria Insurance Industry Reform Bill 2024’ which has scaled a second reading at the floor of the Senate, seeks to increase the minimum capital requirement of life insurance companies from the current N2 billion to N15 billion, and general business from N3 billion to N25 billion.
This is as the reinsurance business will be increasing from N10 billion to N45 billion, according to the proposed bill document sighted by BusinessDay.
Besides that, it plans to licence insurance companies according to their specialisation being life and general insurance business, with no provision for composite structure.
The Nigeria Insurance Industry Reform Bill, 2024 (SB 393), sponsored by Mukhail Adetokunbo Abiru, chairman, Senate Committee on Banking, Insurance and other Financial Institutions, alongside 41 other senators has successfully passed its second reading in the Senate.
Senator Abiru, in his lead debate on the floor of the senate, outlined the bill’s objective to establish a comprehensive legal framework for regulating and supervising all types of insurance businesses in Nigeria.
He emphasised the critical need to address the low penetration of insurance services in the country, which stands at a mere 0.5 percent, ranking 70th globally and 5th in Africa.
Despite being one of the oldest industries in Nigeria’s financial services sector, insurance has not achieved significant growth, says the senator.
Abiru, an accomplished economist and former bank chief executive, highlighted Nigeria’s young and vibrant population and growing GDP as indicators of the industry’s potential for exponential growth.
He however stressed the necessity of reforms to fully realise this potential and contribute to the nation’s economic growth.
Senator Abiru pointed out that existing laws, such as the Insurance Act of 2003, Marine Insurance Act, Motor Vehicles (Third Party Insurance) Act, National Insurance Corporation of Nigeria Act, and Nigeria Reinsurance Corporation Act, have become outdated and ineffective in light of recent innovations and dynamics in the insurance sector.
Tony Elumelu, the chairman of Heirs Holdings had in October 2023 proposed a N50 billion capital base for consolidated insurance companies operating in Nigeria, with general business N30 billion and life businesses N20 billion.
Elumelu said it had become necessary to recapitalise the insurance industry firms in the country as the current N8 billion capital base for life and N10 billion for general as proposed by the National Insurance Commission (NAICOM) is inadequate.
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Session 15 (1), of the Bill, states that a person shall not carry on insurance business in Nigeria unless the insurer has and maintains while carrying on that business, a minimum capital in the case of non-life insurance business, the higher of N25,000,000,000.00, or risk-based capital determined from time to time by the Commission; in the case of life assurance business, the higher of N15,000,000,000.00, or risk-based capital determined from time to time by the Commission; and in the case of reinsurance business, the higher of N45,000,000,000.00, and risk-based capital determined from time to time by the Commission.
In determining the risk-based capital required, the Commission shall take into consideration the capital for insurance risk, market risk, credit risk and operational risk; and apply such capital charges on assets and liabilities as shall be determined from time to time.
“For the purpose of this section, “capital charge” means the proportion of capital required to take care of the potential deterioration of the economic value of an asset and the uncertainty in estimating liability due to the occurrence of an adverse event.”
The minimum capital requirement specified in subsection (1) of this section may in the case of a new company consist of one or more Government Bonds and Treasury Bills; cash and cash, while the minimum capital requirement as specified in subsection (1) of this section shall, in the case of an existing company, consist of one or more of the excess of assets over liabilities, less the amount of own shares held by the firm; and Minimum capital requirements; subordinated liabilities subject to approval by the Commission; and any other financial instrument as may be prescribed by the Commission from time to time.
“An insurer registered before the commencement of this Bill shall comply with the foregoing requirement within 12 months of the commencement of this Bill.
“The Commission shall cancel the registration of any insurer or reinsurer that fails to satisfy the provisions of subsection (2) of this section as it relates to the category of operation of such insurer or reinsurer; and not later than 30 days after expiration of the period specified in subsection (4) of this section, publish a list of all insurers that have complied with the provisions of this section”.
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