Nine months into the insurance industry recapitalisation deadline, no merger deal is in sight yet, even as opportunities to raise fresh funds from the capital market look dim.
Underwriting companies have till June 30, 2020, to meet the new minimum capital requirement set for them by the National Insurance Commission or lose their operating licence.
Analysts have expected that given the low liquidity in the capital market that could have been easier source of fresh funding for insurers, alternative would have been to consummate merger deals.
But with this not coming in sight till now, fears are that a lot of the underwriting companies whose dividend payment record has not been attractive or many others with clear operational challenges may be running into troubled waters in the months ahead.
Nigerian insurance regulator, the National Insurance Commission (NAICOM) had in a circular issued on Monday, May 20, 2019, announced increase in the paid-up share capital of life companies 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.
According to the Commission, the minimum paid-up share capital requirement shall take effect from the commencement date of this circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than June 30, 2020.
Tunji Oluyemi, managing director/ceo, Tespauruth Consulting Limited (TCL), said with the insurance industry returns on investment being as it were today, I think the industry as a whole would encounter difficulty in attracting fresh local capital.
“Local alternative asset classes offer returns significantly superior to what may be obtained in the insurance industry,” Oluyemi said.
According to Oluyemi, the reality is that more than 85 percent of insurance companies’ stocks on the NSE are priced below 50 kobo, and “effectively, these are penny stocks, and may look attractive in particular to the discerning foreign investor with patient capital.”
He however said we expect most of the activity to be in the realm of mergers and acquisitions (M&A), stating that his company TCL was already discussing with some individual players in match-making exercises.
“We will assist in a range of interlocking activities, details of which we may not go into here. We expect to record significant success in our efforts in this area,” he said.
Pius Apere, managing director/ceo, Achor Actuarial Services Limited, sympathetic with some insurers that may have difficulty meeting the new minimum capital requirement, urged NAICOM not to throw them away.
He stated that rather than consider liquidation, the Commission should transit any company that failed the recapitalisation test to micro insurance providers, stating that they would have value to add to that scheme having already acquired a lot of capacity.
