• Monday, May 20, 2024
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BusinessDay

Insurers worried over recapitalisation exercise

coronavirus (28)

“I am worried about the current fall in oil price,  as well coronavirus, and hope it does not lead to another recession, because it does, then we will have problems in the ongoing recapitalisation exercise, an Insurance CEO said.

“We are headed for another recession; this is my biggest worry now, another insurance CEO.

Insurance industry in Nigeria is going through a recapitalisation exercise that will require operators shore up their paid-up share capital to as much as 300 percent.

The exercise, which commenced on 20th  May 2019 and to end on 31 December 2020, requires that life companies increase their paid-up share capital 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.

But the current continuous fall in oil prices, the fall in naira and the global coronavirus disease is feared would affect raising funds at this time, as inflows in the course of the recapitalisation exercise has been from private equity investors both within and outside the country.

The pressure on the local currency intensified on Thursday as one dollar traded for N410 at the black market, though returned at N375 on Friday over news that the Central Bank of Nigeria was not going to embark on recession.

Foreign exchange users were buying up the dollar to hedge against imminent devaluation of the naira as the price of oil has slumped below $34 per barrel.

 Swiss Re Institute had stated weekend that it’s expecting to see a global recession in 2020 as the coronavirus outbreak continues to cause major disruption around the world, putting pressure on already weak economic resilience.

Swiss Re analysts noted that the recession will likely be mild in a historical context, although economic growth will likely decelerate quite abruptly in Japan and the Eurozone, including in Italy, France and Germany.

“We expect a global recession with economic risks having intensified abruptly,” said Jérôme Haegeli, group chief economist at Swiss Re.

“Fact is: the coronavirus is hitting the global economy when economic resilience is already weak to start with.”

The US and China are forecast to remain more resilient, although the risk of both a US recession and a China hard landing has risen to a very high 40 percent.

Swiss Re also foresees further monetary easing but said that central bank action will need to be coordinated with forceful fiscal expansion to be effective.

It noted that few fiscal measures have been proposed thus far outside of Asia, with coordination among the G7 countries most likely if the situation deteriorates further.

In addition, global bond yields will remain even lower as US rates are quite likely to temporarily go below zero percent.

Given market dynamics, Swiss Re forecasts US 10- year yields to remain below 1 percent until the end of 2021, possibly going as low as zero or below temporarily, even without a technical recession domestically.

The coronavirus outbreak in the EU and US is still intensifying with the whole of Italy under quarantine, but analysts believe that the spread of the virus in China appears to have peaked, with early signs of normalising activity.

In China, Swiss Re has lowered GDP growth to 4.8 percent in 2020 and 5.5 percent in 2021, with a strong rebound in growth anticipated in the second quarter of the year.