The Nigerian Senate has passed the Insurance Reform Bill, 2024, which raises the minimum capital base for insurance companies operating in the country.
The reform bill sponsored by Mukhail Abiru, chairman, Senate committee on banking, insurance and other financial institutions, proposes N15 billion as the minimum capital requirement for non-life insurance companies, up from N3 billion; N10 billion for life assurance, up from ₦3 billion; and N35 billion for reinsurance businesses, up from ₦10 billion.
The bill was read for the third time on Tuesday, following a clause-by-clause consideration and a majority vote in favour by the lawmakers.
Section 15 of the bill proposes that a person shall not carry out an insurance business in Nigeria unless the insurer has and maintains the minimum capital requirement.
“(a)In the case of non-life insurance business, the higher of N15,000,000,000 or risk based capital determined by the Commission. (b) Life assurance business, the higher of N10,000,000,000 or risk based capital determined by the Commission. (C) reinsurance business, the higher of N35,000,000 and risk based capital determined by the Commission,” the bill read.
The Senate Committee on Banking explained that the increase is necessitated by depreciation in value of currency and the Finance Act 2022, which has redefined the composition of the capital, inflation, international competitiveness, and AfCFTA competitiveness.
Other reasons highlighted by the Committee include capital flight due to overeliance on foreign insurance, emerging risks such as cyber insurance, insurtech, consumer credit insurance, among others.
Subsection 2 stipulates that in determining the risk base capital, the Commission shall take into consideration the capital for insurance risk, market risk, credit risk and operational risk. It shall apply such capital charges on assets and liabilities as shall be determined from time to time.
Subsection 3 stipulates that the minimum capital requirement may, in the case of a new company, consist of one or more of government bond and treasury bills , cash and equivalent.
For existing companies, it shall consist of the excess of assets over liabilities,the amount of own shares held by the firm; subordinated liabilities subject to approval by the Commission (National Insurance Commission) and any other financial instrument as may be prescribed by the commission.
Section 16 of the bill stipulates that a new insurer shall deposit 50 percent of the minimum capital requirement with the Central Bank Of Nigeria. Eighty percent of the deposit shall be returned with interest no later than 60 days after registration . For existing companies, 15 percent shall be deposited with the apex bank.
The bill also introduces a new subsection under section 76 which stipulates that 0.25 percent of the net premium received by every direct insurer shall be paid by every insurer into Fire Services Maintenance Fund, which shall be shall established, administered and disbursed by the commission for the purpose of providing grant or equipment to institutions engaged in firefighting services.
During clause-by-clause consideration, Jimoh Ibrahim, chairman, Senate Committee on Inter-parliamentary Affairs, expressed concerns that the recapitalisation will lead to death of insurance companies.
“We only have one re-insurance company, and now we are increasing the capital. This is impossible, and as a matter of fact, 20 percent of that will be deposited in CBN forever. This increase will lead to their death,” he argued.
He subsequently moved that the current capital requirement for insurance companies be retained, but no Lawmaker seconded it. Rather, the majority of lawmakers voted that the bill be read for a third time and passed.
The bill will now be transmitted to the House of Representatives for concurrence, after which it will be transmitted to President Bola Tinubu for assent to become law.
Once enacted, insurance companies across Nigeria will need to comply with the revised minimum capital requirements to continue operations.
Stakeholders who advocated for these reforms believe the enhanced capitalisation will empower the industry to underwrite high-risk ventures and improve retention capacity in the local market.
Explaining the significance of the bill, Abiru noted that a key objective of the bill is to consolidate the various existing pieces of legislation such as the Insurance Act 2003, the Marine Insurance Act, the National Insurance Corporation Act and the Nigerian Reinsurance Act, which he noted are obsolete and currently stifling the industry’s potential to compete globally.
“They do not resonate with the current dynamics and evolving needs of Nigeria’s insurance industry. All these legislations have surpassed the three-decade mark and the lack of issues that can adequately address contemporary challenges and support growth and innovation to this leading industry. These legal obsolescence has led to some of the regulatory inefficiencies in the insurance industry, and these have also hampered the industry’s ability to successfully compete on a global level,” Abiru explained.
The senator said the bill also seeks to evolve effective risk-based cooperation between regulators.
“Another objective is it will ensure that the insurance sector contributes positively to the principal objectives of the financial system in order to make Nigeria Africa’s financial hub and one of the 20 largest economies in the world,” he added.
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