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Weak, low capitalised insurers face tough time in Risk Base Supervision

Insurance companies struggling with poor solvency margins, low capital base will face a tough time soon when the industry regulator, the National Insurance Commission (NAICOM) commences Risk Based Supervision (RBS).

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With the implementation of RBS in August 2021 according to NAICOM, insurers hunger for business acquisition or risks will be limited to their level of capital and capacity to meet claims obligations when they occur.

According to industry analysts, this offers better protection for policyholders as well as shareholders, as RBS will ensure companies do not risk shareholders capital in taking risks, and the policyholder can also be met comfortably.

The National Insurance Commission (NAICOM) weekend during the Seminar for Insurance Journalist held in Lagos said that it has put the necessary structure in place to commence implementation of Risk Based Supervision (RBS) in the next two months.

Sunday Thomas, commissioner for Insurance said the relevant personnel have been trained, the necessary skills have been acquired and the instruments that will enable the implementation have been developed for take-off.

NAICOM has been advancing the policy and transition from a compliance-based model of supervision to that of risk-based supervision (RBS) since  2017, having issued several guidelines in the past including corporate governance, enterprise risk, prudential guidelines among others.

The RBS is a system in which the supervising authority allocates time and resources to firms based on the level of risk inherent to their balance sheet.

The supervisor assesses the systemic risk that affects the industry as a whole and then analyses the level of risk specific to each firm. It takes a holistic approach and studies the business units within the enterprise, each of which may carry varying levels of risk.

The transition process, which has been underway since 2015, will allow NAICOM to determine capital requirements for individual insurance companies based on the risk they carry in their portfolios instead of applying the same minimum standards across the industry.

The commission released a set of draft guidelines for feedback in November 2016 and gave the industry four weeks to submit comments.

The Commission at the conference also said the NAICOM Insurance Academy will take off by the beginning of the fourth quarter.

Thomas said that the Commission is conscious of the fact that the insurance sector is a knowledge base sector, and so the Commission is working hard to assist in the development of Actuarial programs in higher institutions

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