Recapitalisation: Insurance industry assets rise to N2.02tn
Insurance companies’ gross written premium rose to N520bn as of the end of 2020, while their assets hit N2.02tn as the sector undergoes recapitalisation, NIKE POPOOLA reports
The Nigerian insurance industry’s asset rose by N401bn to N2.02tn as of the end of 2020 from N1.62tn as of the end of 2019.
Statistics obtained on Sunday from the Central Bank of Nigeria on ‘Insurance sector (general and life) consolidated balance sheet)’ showed these.
The National Insurance Commission also disclosed in its report on ‘Market Development Drives of NAICOM’ that as of the end of 2020, the sector generated a gross written premium of N520bn.
Other statistics showed that as of the end of 2020, policies held by individual Nigerians were 1,034,383; corporate and non-individual policies were 891,128; total policies written were 1,925,511; while the insurance penetration during the period under review was 0.72 per cent.
In 2019, NAICOM mandated new capitals for the insurance and reinsurance firms.
It mandated that 50 per cent of the minimum paid-up capital for insurance and 60 per cent for reinsurance must be met by 31 December 2020.
Life and general insurance companies were asked to shore up their existing minimum paid-up capital from N2bn and N3bn to N4bn and N5bn respectively by the end of December 2020, and meet the final minimum paid-up capital requirements of N8bn and N10bn respectively by the end of September 2021.
Composite companies and reinsurance firms were asked to shore up from existing minimum paid-up capital of N5bn and N10bn to N9bn and N12bn by the end of December 2020 and to N18bn and N20bn respectively by the end of September 2021.
However, the December deadline failed to be implemented as some dissatisfied companies, using their shareholders, dragged the regulator to court.
The operators also urged NAICOM to amend its paid up capital requirement to consider other assets aside from cash, which the regulator did not grant.
In December 2020, the House of Representatives asked NAICOM to suspend the December 31, 2020 deadline, while two legal actions in Abuja and Lagos, instituted against the regulator, were still pending in courts.
This, coupled with the court actions, led the commission to suspend the first phase of the recapitalisation, leaving the second phase scheduled to end by September 2021.
However, some underwriters had declared on their own that they met the requirements before the first phase of the recapitalisation was suspended.
While the second phase was still pending, some companies had also assured their shareholders of meeting the regulatory requirements.
The Chairman, Regency Alliance Insurance Plc, Mr Clem Baiye, during the firm’s recent annual general meeting, reassured shareholders that the company’s fundamentals remained strong and that it was well positioned to meet the new minimum capital requirements of NAICOM.
Heirs Insurance and Heirs Life disclosed they were starting operations with paid-up share capitals of N10bn and N8bn respectively. This makes the firms to be liquid and well-capitalised, according to regulatory requirements.
The two firms recently commenced operations after they were newly licensed by NAICOM.
The Commissioner for Insurance, Mr Sunday Thomas, had identified one of the reasons for introducing recapitalisation in the industry as an effort to strengthen the performing firms and sieve out the non-performing ones.
He observed that some underwriting firms already had liquidity problems and could not their claims obligations.
Thomas said, “The only thing we can do that can probably please people now is to cancel licences, and that does not solve the problem.
“When they have the tendency of recapitalising and paying those claims, if you can cancel the licences, how are those claims going to be paid?
“That is why I have said let us drag along and see how we can get to the end before the recapitalisation period, and if it is not going to happen, there are definitely so many options that we have that we can use and we are looking at all of those options.”
He said the companies must bring in cash as evidence of recapitalisation because they needed the cash to pay claims and meet other requirements.
Thomas said, “This is why we are insisting that companies must bring cash into the company and not just come and say you have recapitalised.
“After the recapitalisation, can you meet your obligations? These were some of the things that we were looking at.”
However, operators are of the view that legal contests confronting the recapitalisation may not be the only challenge to the regulator in executing its plans.
This is because the operators had approached the lawmakers to redefine the requirements of the recapitalisation to their taste.
During the public hearing on Consolidated Insurance Bill 2020 organised by the House of Representatives Committee on Insurance and Actuarial matters in Abuja, the Nigerian Insurers Association recommended introduction of Risk Based Capital in the Consolidated Insurance Bill.
It described it as the right capital model for the insurance industry in order to align the Nigerian insurance market with international best practice.
In adopting risk based capital adequacy template, the association took cognisance of the need to consider insurance risk, market risk, credit risk, and operational risk as well as the need to apply such capital charges on assets and liabilities (all capital resources inclusive).
It hinged the position on the 2013 International Monetary Fund report on the Nigerian insurance industry which prescribed risk based capital model as most suitable for the Nigerian insurance market.
According to the association, the IMF report was duly acknowledged and admitted by NAICOM as the right capital framework for the market, as it sought to limit the capital required by operators to the level of risks they could carry.
When the bill is eventually signed into law in line with the proposal, it would lay to rest the contentious issue of the definition of capital which had been a major point of the association’s engagements with the NAICOM on the recapitalization exercise.
“We are convinced that risk based capital adequacy template is the best fit for the insurance industry in Nigeria especially given the fact that the 2013 IMF report had prescribed it and the commission agreed with it,” the NIA stated.
However, while responding to a question from our correspondent on the current state of insurance law, the Chairman, House of Representatives Committee on Insurance and Actuarial Matters, Darlington Nwokocha, said, “We are amending the act of NAICOM and it is almost done.
“In the next few months from now, we will have a well amended insurance Act.”
The operators however noted that their inputs in the insurance bill clashed with the requirements of the ongoing recapitalisation in the sector.