Court disrupts tier based capital structure take-off plan

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The plan by the National Insurance Commission, NAICOM, to kick off the Tier Based Minimum Solvency Capital, TBMSC, structure from October 01, 2018 has been disrupted as a Federal High Court in Lagos has put it on hold.

Justice Hassan of the Federal High Court sitting in Lagos restrained NAICOM from implementing the TBMSC structure, until after the expiration of 30 days pre-action notice which shareholders of insurance companies served the Commission on the 6th of September, 2018.

The case, filed by Sir Sunny Nwosu and seven others against NAICOM has suit no 1483 of 2018 FHC/L/CS/ 1483/18 and hearing has been adjourned to October 8, 2018.

The court order stated, “An order restraining the defendant by themselves, their directors, officers, agents, servants, privies, trustees, nominees, proxies or any other person, natural or artificial, however, called from giving effect to, executing and/or enforcing the Circular titled: ‘Tier Based Minimum Solvency Capital Policy for insurance companies in Nigeria’ with circular no: NAICOM/DAPCIR/14/2018 and dated august 27, 2018 pending the expiration of the thirty-day pre-action notice dated 4th September, 2018 which the plaintiffs served on the defendant on 6th September, 2018 giving notice under section 51 of the National Insurance Commission Act of the intention of the plaintiffs to institute as action against the defendant in the terms of the notice to pray this court to set aside the said circular (except the defendant should withdraw the same) and pending the issuance and service of the processes of institution of the proposed action or pending further or other order of the court.”

It will be recalled that NAICOM had, in August 2018, announced October 1st, 2018, as commencement date for the TBMSC against January 1st, 2019 it earlier announced.

According to the circular sent to insurance companies by NAICOM, all insurance companies are to communicate to NAICOM the tier they intended to play in before October 1, 2018. NAICOM maintained that only companies that meet the respective tier requirements shall lead on new businesses in those categories with effect from October 1, 2018.

“Companies shall be assessed, in the first instance, on their approved financial statement for 2017, and audited half year account for 2018.

“However, where a company is yet to obtain approval for its 2017 financial statement, its last approved audited accounts will be used for the assessment.”

The TBMSC structure is a three level model which specifies capital requirement for each tier based on their respective risk classification.

Tier-3 of the TBMSC stipulates that companies will operate on the existing minimum paid up capital of N2 billion for life, N3 billion for non-life and N5 billion for composite underwriters. Life companies will only be permitted to underwrite individual life policy, health insurance, and miscellaneous insurances.

Non-life companies will only underwrite fire, motor, engineering (only classes covered by compulsory insurance), general accident, agriculture and miscellaneous insurances.

To operate in tier-2 of the TBMSC, life companies must have N3 billion capital base and will underwrite all tier-3 risks and group life assurance. Non-life companies must have N4.5 billion and will underwrite all tier-3 risks, as well as engineering (all inclusive), marine, bonds credit guarantee and suretyship insurances.

For tier-1 players, life companies must have N6 billion capital base and will underwrite all tier-2 risks and annuity, non-life companies must have N9 billion capital base and will underwrite all tier-2 risks, as well as oil & gas, (oil related projects, exploration & production) and aviation insurance. 

Source: VANGUARD

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