Recap: NAICOM, insurers differ on contingency cash reserve use


The National Insurance Commission (NAICOM) at the weekend insisted that the contingency reserves of insurance firms would not be accepted as part of funds for recapitalisation.

The Commission was adamant despite calls by some chief executive officers of insurance firms that the regulator should recognise the cash in their contingency reserve as part of their capital to meet the recapitalisation.

Contingency reserve is retained earnings that have been set aside to guard against future losses. A contingency reserve is needed in situations where a business suffers significant losses and needs reserves to offset those losses. They are used by insurance firms.

But rather than accept the demand of the insurers to use the money as part of funds for recapitalisation, the Commissioner for Insurance, Mr Sunday Thomas, has appealed to insurers to focus on raising their minimum paid-up share capital, as stipulated by law.

The Commissioner told The Nation that told the operators that the law says that retained earnings must be capitalised and that is what NAICOM and insurers must follow.

He said the call to allow for the use contingency cash reserve was being made by few insurers, adding that not many of them have substantial cash in their reserve to use should the regulator allow them to do so.

Thomas noted that only 10 per cent of the 55 insurance firms have good cash in their contingency reserve account.

He said: “We are aware that some chief executives are asking that we allow them to use the money in their contingency reserve. The truth is that many companies do not even have money that is substantial enough in their reserve. Only 10 per cent of them have something substantial.

“However, the law does not permit us to recognise the money in contingency reserve to make up for the minimum paid-up-share capital required to recapitalisation. Contingency reserve is a statutory reserve and there is a reason for it. If there are losses as a result of calculations that is more than what it is put in premium, then you can draw it to make up for the losses.

“I was thinking of it at a point whether we should just allow the insurers to leave 50 per cent of the reserve to be left , but paid-up share capital cannot be overburdened and that is why the law says part of your premium should be reserved for contingency. My appeal to the operators is for us to do it right.”


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