New insurance industry policy sidelines 40 companies


EXCEPT the National Insurance Commission, NAICOM, approves new insurance licenses, only nine insurance companies in Nigeria would be allowed to underwrite big ticket policies by next year, under the Tier-Based Minimum Solvency Capital, TBMSC, structure.

Industry analysts believe this development puts 40 other operators in competitive sidelines based on the criteria for the top-class underwriting category. 

The TBMSC is expected to have recognised the nine companies as tier-1 underwriters for the purpose of big ticket risks such as oil and gas, aviation as well as annuity.

Interested investors

Although NAICOM has said that it will open up licencing window to interested investors at tier-1 level, some operators that currently fall under tier-2 and three levels are worried that the upcoming general elections next year could deprive them the opportunity to beef up their capital to the target tier-1 level as investors from the political class are focused on the elections, while other major investors would not invest because of the market risks associated with electoral uncertainties.

Accordingly, these operators are of the opinion that NAICOM’s January 1, 2019 commencement date for the TBMSC implementation is ill-timed.

NAICOM had said that from the said date, insurance companies will be categorized into tiers based on their 2017 financial positions.

The TBMSC structure is a complementary measure to the ongoing implementation of the Risk-Based Supervision, RBS, programme. It 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.

Composite  company

To operate in tier-2 of the TBMSC, companies must have 50 percent additional on the capital base. 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, companies must have 200 percent additional on the capital base. While 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 insurances.

In essence any composite company, that is life and non-life, that wants to be in tier-1 must have N15 billion, tier-2 must have N7.5 billion while tier-3 must have N5 billion.

Companies’ position

Analysis of 2017 financial reports of companies show that firms that could fall under the tier-1 composite category are Leadway Assurance Company Limited with shareholders funds of N52.4 billion; Custodian and Allied with shareholders funds of N35.4 billion; Axa Mansard with shareholders funds of N20.3 billion; Wapic Insurance with N17.9 billion; as well as Zenith Insurance with N23.5 billion.

Under the tier-1 category for non-life business, companies that could fall under it are Linkage Assurance with N19.9 billion; Universal Insurance with N10.4 billion; as well as Nem Insurance with N9.7 billion.

Companies that could fall under the tier-2 composite category are Aiico insurance with N10.5 billion; NSIA Insurance with N10.7 billion; Lasaco Assurance with N8.2 billion; Mutual Benefits Assurance with N8.1 billion; as well as Niger insurance with N7.8 billion.

Non-life category

Under the tier-2 non-life category, companies that could fall under it are Prestige Assurance with N7.5 billion; Consolidated Hallmark with N4.7 billion; Law Union & Rock with N6.5 billion; Saham Unitrust with N7.8 billion; Sovereign Trust with N5.5 billion; as well as Regency Alliance with N5.2 billion.

For the tier-3 composite category, the companies that could fall under it are Great Nigeria Insurance with N5.9 billion; as well as Royal Exchange with N5.6 billion. Companies that could fall under tier-3 non-life category are Sunu Assurance with N4.3 billion; as well as Guinea Insurance with N3.0 billion.

Arm Life as well as Metropolitan Life companies that underwrite life businesses, both fall into tier-2 category with N3.2 billion; and N4.1 billion respectively.

NAICOM’s position

NAICOM, the regulatory body of insurance practice in the country said that the industry, by unanimous consensus, agreed to a desirable recapitalization at the Insurers Committee Retreat held on February 15 – 16, 2018 in Abeokuta.

According to NAICOM, the new recapitalization became necessary due to the effect of 2008 global financial crisis and recent economic recession in Nigeria on insurers, coupled with the inability of some insurers to honour contractual commitments they have made to the insured and other stakeholders. Improper capital structures, according to the regulator, can lead to the extinction of the insurance industry, hence the need for restructuring of capital resources for improved liquidity and claims settlement.

NAICOM has, however, promised not to compel insurance firms to inject fresh capital neither would there be cancellation of licence of any operator on the account of the implementation of the new rule. But the Commission insists that companies will be subjected to solvency control levels.

NAICOM stated, “Companies shall be assessed in the first instance on their approved financial statements for 2017. All companies shall be assessed and graded to the equivalent tier that its capital can accommodate. Subsequently, request for change of tier-level shall be subject to the filing of an application, and approval by NAICOM, on satisfactory fulfilment of set conditions.”

Stakeholders’ reaction

Reacting to the development, stakeholders are of the opinion that the regulator should exercise caution in the implementation of the TBMSC structure.

Vice President of the Nigerian Council of Registered Insurance Brokers, Mr. Rotimu Edu said “It is good for the industry to be recapitalized but a note of caution should be taken in the administration of the tier system else the small companies may go under.

“With the tier based recapitalization system, small companies may not be able to participate in private or government businesses that may enable them to survive or grow. Government businesses or mega accounts should also be made available to small companies or NAICOM should have a way of providing guidelines for supporting the smaller companies with government and mega businesses for growth and industry capacity.”

Speaking on the condition of anonymity, a Managing Director of one of the tier-2 companies said that the window period given for companies that want to move to higher tier is short.

He stated: “We have been given a five months window period between now and January to recapitalize. However, the period of grace is short. Recall that the first round of recapitalization in 2007 took some companies over a year to meet up. Over the course of the years, there are some companies whose share capital have depleted below the N3 billion minimum base capital.

“From January next year, we will be preparing for another election, so I believe that this is ill-timed. So many people are thinking of what will be the outcome of 2019 election, so whatever money is in the coffers of politicians, will be channelled into the electioneering process. Also, other prospective investors may not be thinking of investment for now until the economy stabilizes after the election.”


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