•Say all eyes on regulator

By Henry Uche, [email protected]   


As the recapitalisation race kicks off in the banking ecosystem, insurance experts have recommended that the same transformational blueprint be replicated in the sector so that operators can take on fatter portfolios and fortify the sector better.

This push for recapitalisation in the insurance sector is also to deepen global competitiveness.

These experts argue that a robust insurance sector complements a strong banking system in fostering economic resillience. They say insurance acts like a safety net, preventing unforeseen risks both for individuals and businesses, thereby, contributing to a more stable economy.

Though some experts opted to remain silent over the recapitalisation debate,  others have affirmed that the move by CBN is a step in the right direction and should permeate into the insurance sector.

While the banking sector has a two-year window to meet up with the N500 billon minimum threshold for commercial banks with international authorisation  from N50 billion, N200bn for commercial banks with national authorisation from N25 billion, N50bilion  for those with regional authorization from N10 billion; insurance industry czars have bemoaned the current N2 billion capital base for  life insurance segment, N3 billion for non-life/general, N5 billion for composite insurance and N10 billion for reinsurance.

NAICOM in a circular to all insurance companies on June 3, 2020, titled, ‘Segmentation of minimum paid up share capital requirements for insurance companies in Nigeria’, mandated underwriters to meet the deadline for the first phase of the recapitalisation exercise, which was slated for December 31, 2020.

Life insurance companies were ordered to raise their capital from N2 billion to N4 billion at the end of the first phase and N8 billion at the end of the second phase. General insurance companies were ordered to increase their capital from N3bn at the end of the first phase to N5bn and N10bn at the end of the second phase.

Composite underwriters were ordered to raise their capital from N5bn to N9bn at the end of the first phase, and to N18bn at the end of the second phase. The reinsurance firms were ordered to raise their capital from N10bn to N12bn at the end of the first phase, and to N20bn at the final phase.

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However, litigation by some aggrieved companies compelled NAICOM to suspend the recapitalisation exercise after the first phase. Since then, critical stakeholders have been calling for risk-based supervision, rather than capital base since insurance is more of risk management.

The chairman of Heirs Holdings & UBA Group, Mr. Tony Elumelu, had in October 2023, at the national conference put together by NAICOM, in Abuja, proposed a N30billion capital base for general insurance, N20 billion for life insurance, N50 billion for composite insurance and N1billion capital base for insurance brokers. This, according to him would enable operators to stand strong amidst current market realities and the associated risks and compete favourably on the international stage. Since then, industry analysts have  waited to see what the regulator (NAICOM) would come up with.

The Head of Insurance Department, Lagos State University (LASU), Dr. Abass Olufemi, who spoke to Daily Sun on the fate of the industry, disagreed with Elumelu on the recapitalisation figures, instead, he opted for N40billion for general insurance business, N30billion for life, N80billion for reinsurance, and N1.5billion for insurance brokers, with one year window saying, “I don’t believe in composite insurance business. There should be life and non- life insurance. This is to enable companies leverage on competitive edge.”

Dr. Abass suggested that the industry should be delineated and departmentalised based on their level of capacity. According to him, there is nothing like a general insurance playing field, instead operators should be encouraged to play according to their competitive advantage. “We can have regional insurance. A concentrated or segmented insurance will lead to professionalism and boost penetration,” he said.

He moved for a re-structuring of insurance industry that can give birth to international insurance companies whose major operations would focus on very volatile space like oil and gas, aviation and shipping business. Like the banking sector, such insurance companies can be classified as tier 1, that can even play offshore and assume higher risks.

“We can still have tier 2 insurance which would focus on selected risks, leveraging on their unique capabilities, while tier 3 can be regional underwriters – companies with seemly low risks like motor insurance, theft, burglary and the likes, I think this is the way insurance business go,” he said.

The president/chairman of governing body, Risk Managers Society of Nigeria (RIMSON), Mr. Gus Wiggle, shares the same opinion, saying that if insurance companies operating in Nigeria want to play big, they must jettison the current operating capital based.

According to him, shareholders’ funds must not be tampered with for a recap but the required capital should be injected as CBN insisted for the banks. He said that this is feasible and the insurance industry needs it now.

Wiggle who was an erstwhile chairman of the Nigerian Insurers Association (NIA) said that the current capital base cannot carry or bear the risks associated with oil and gas, aviation  and shipping businesses.

He said: “Honestly, the capacity to retain is not there; not with N2bn, or N3bn. We can’t continue to play the ostrich. If we don’t re-capitalise, we will continue to be looked on as the poor cousin of the financial sector. Banks raised their stake because they want to play big, so if we (insurance) must play big, there is nothing wrong in recapitalisation.”

The insurance expert decried what he said is a ‘two -regime recapitalisation’ where some insurance companies have N8billion, others have N2billion, while some are doing N10billion in the same risk line of business. He said such should not be, instead operators should cooperate with NAICOM to have a defined recapitalisation and stand competitively. “There is capital flight especially in areas of oil and gas, aviation, shipping business and the likes. The local content have tried by giving us the leverage to retain 70 per cent, but how many insurance companies today are really retaining up to 70 per cent oil businesses? I am one of those who believe that risk based supervision is the way forward. So, recapitalisation shouldn’t be a static move but should revolve even as the economy evolves,” he said.