Based on estimates by Chapel Hill Denham Limited, existing companies with capital shortfalls will require additional capital of over N291 billion ($ 810 million), to meet regulator’s new minimum capital requirements.
The investment house used the latest financial statement of 41 out of 51 insurance and reinsurance companies, to calculate the shortfall.
A shortfall is the difference between the new minimum capital and insurer’s total capital, which comprise of shareholders’ fund, share capital and qualifying capital.
Analysts at Chapel Hill Denham however note that using the shareholders’ funds, the short fall is lower at N209 billion ($577 million), which is similar to its estimate of over N210 billion in capital injection if all insurers were to fall under tier 1 in the cancelled tier based approach.
They add that the shortfall is N247 billion, using only share capital and premium.
The report shows that total industry short falls for composite business stood at N150.66 billion using the qualifying capital approach, N108.15 billion under the shareholders’ fund, and N118.15 billion, using the share capital.
For General Insurance, short fall is N95.48 billion using the qualifying capital approach, N68.19 billion using the shareholders funds’ fund, approach, and N89.31 billion, using the share capital approach.
According to the report, Life Insurance business has a capital short fall of N39.16 billion using the qualifying capital approach, N30.65 billion under the shareholders’ funds approach, and N28.92 billion under the share capital approach.
According to the National Insurance Commission (NAICOM), qualifying capital is the sum of share capital, share premium and retained earnings, while the share capital is the amount contributed by the owners of the business.
In the according parlance, the shareholders’ funds is the sum of the share capital, share premium, retained earnings and other reserves.
Analysts at Chapel Hill noted that some of the well capitalized insurers have the capacity to acquire smaller players with short falls of N3 billion and they added that insurers that are unable to raise capital could opt for recapitalization.
“We believe it will be difficult for listed insurers with a shortfall of above N5 billion to raise additional capital from the current weak capital market,” said analysts at Chapel Hill Denham Ltd.
A further breakdown by the investment house reveals companies that meet the minimum capital requirement by the National Insurance Commission (NAICOM).
According to the report, in the Composite Business, only Leadway Assurance met the requirement with a surplus, but it recorded a deficit using the share capital approach.
For life business, First Bank Nigeria (FBN) Insurance, Prudential Zenith Life Assurance, and Custodian Life Assurance, met the requirements with surpluses. On the other hand, only FBN Insurance crossed the line, as it recorded a surplus of N2.72 billion, using the qualifying capital approach.
Drilling down the report shows that for General Insurance business, Zenith General Insurance, Custodian and Allied, Wapic General Insurance, NEM, and Linkage meet the requirement. But using the qualifying capital approach shrank the list as only Zenith General Insurance, Custodian and Allied, and Wapic General crossed the line.
It is interesting to note that only Wapic General meets the requirement using the share capital approach.
NAICOM, worried about the weak financial position of most insurers, increased the capital bases of companies so as to enable them take on more risk and contribute more to the economy.
In the new capital base, life insurance companies will now have a minim paid-up capital of N8bn from its previous N2bn, General Insurance companies will now have to recapitalize to N10bn from N3bn, while Composite Insurance companies will now need N18bn to underwrite businesses from the previous N5bn minimum capital.
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