NAICOM forecloses single capital requirement for insurance companies

With the planned adoption of risk-based assessment for insurance companies in Nigeria, the National Insurance Commission (NAICOM) has foreclosed a single capital requirement for players in the industry.

The commission said with full implementation of the policy expected to deepen soon, companies will be required individually to capitalise based on their risk appetite and vision.

If this happens, it brings to an end ongoing recapitalisation exercise in the industry that had expected players to increase their capital requirement to over 300 percent, which was to end on September 30, 2021, before it was stalled by legal action against NAICOM.

Under the recapitalisation exercise, NAICOM had mandated life insurance firms to meet a minimum paid-up capital of N8 billion, up from N2 billion while general insurance companies are expected to increase their paid-up capital to N10 billion, from the earlier N3 billion.

Composite insurance (life and non-life operators) were asked to recapitalise to the tune of N18 billion as against the previous N5 billion while reinsurance businesses are now required to have a minimum capital of N20 billion, from N10 billion obtainable in the past.

Sunday Thomas, commissioner for insurance made the disclosure during the 2022 annual business outlook seminar organised by the Chartered Insurance Institute of Nigeria (CIIN) held in Lagos. He said the commission is currently building capacity with training and retraining of its staff for effective implementation of the policy.

“NAICOM is in the process of strengthening its regulatory oversight and risk management capabilities that will improve its internal capacity for assessment of emerging risks.”

It is also working on improving industry readiness assessment, implementing own risk and solvency assessment (ORSA), internal capital models, solvency test, stress testing, incentivising effective risk management enablers, among others.

According to him, companies will be advised after a stress test on what is the appropriate capital requirement for their operations based on the risk they carry, and the commission will ensure it complied with.

Thomas, who supported the position of Oladimeji Alo, CEO, Excel Professional Services and the lead paper presenter at the seminar on what insurance companies should do about recapitalisation said: “Like what Alo said, companies should on their own work towards increasing their capital based on the level they want to play without waiting on the regulator to make a pronouncement.”

Alo speaking at the event, said ‘If I were an insurance player, I would not wait for any new pronouncement for capital increase, but will on my own move ahead to increase because it will definitely come, he said.

Speaking on the theme ‘Economic policies of the Federal Government of Nigeria in 2022 – issues, challenges and prospects’, Alo said, insurance companies that will win the competitive game in 2022 are those that pay attention to economic policies of the government that have the highest possibility of being implemented.

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“Invest in IT to drive operational efficiency and customer service; pay attention to challenges posed to the sector by the incursion of Fintechs; innovate strategies around cost containment automation, service delivery and product development.”

According to him, attention should be paid on industry wide collaborations on advocacy, consumer education and capacity building.

Muftau Oyegunle, president of CIIN, speaking earlier, said the programme among other things, examines the National Budget, reviews the thrusts of the fiscal and monetary policies of the government, estimate how these will influence the insurance industry in particular, and the economy in general.

He expressed optimism that this year’s outlook will be very insightful considering the positive projections of the global industry by international analysts, which suggest that demand for insurance would keep rising worldwide; and that the industry will be bullish notwithstanding concerns about the potential effects of Covid-19 variants.

Peter Ashade, CEO, United Capital in his presentation also emphasised the importance of capitalising the insurance industry, stating that, not only will it strengthen individual companies for a bigger role in the industry, it will elevate the status and contribution of the sector to the economy.