Insurance Sector’s Assets Hit N1.82tn on Recapitalisation Deadline

Despite the impact of COVID-19 pandemic on the economy, the insurance industry attracted some investments that boosted its assets, investigation has shown.

Many of the underwriting firms started sourcing for foreign investors to bring in new capital since the National Insurance Commission ordered the firms to beef up their capital requirements in 2019.

Figures obtained from the Central Bank of Nigeria’s report on ‘Insurance sector (general and life) consolidated balance sheet’ revealed that the industry’s asset rose by N410bn from N1.41tn as of the end of third quarter of 2019 to N1.82tn as of the end of third quarter of 2020.

According to the CBN report, the figure which stood at N1.26tn as of the end of 2018 rose to N1.61tn as of the end of 2019.

The statistics further revealed that the assets rose to N1.52tn, N1.79tn and N1.82tn as of the end of first, second and third quarters of 2020 respectively.

NAICOM had 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.

The regulatory body had stated that insurance companies that failed to satisfy the required minimum paid-up capital by December 31, 2020 would be restricted on the scope of business they could transact.

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 end of December 2020 and to N18bn and N20bn respectively by the end of September 2021.

Some operators had urged NAICOM to waive the first phase of its segmented recapitalisation.

The underwriters also urged NAICOM to consider their challenges by amending some of the requirements in the recapitalisation directive.

The operators said they were more concerned about the aspect relating to attainment of certain thresholds by 31 December 2020, failing which the commission would restrict the scope of business insurance and reinsurance companies would transact.

According to them, the huge impact of COVID-19 on the financial services sector and the national economy at large, coupled with the situation that was worsened by losses from the nationwide #EndSARS protests in the later part of 2020 affected them.

However, as NAICOM’s directive remained, some displeased operators dragged the regulator to court, using some shareholders’ associations.

On December 9, 2020, the House of Representatives asked NAICOM to suspend the December 31, 2020 deadline set for operators in the insurance industry to recapitalise.

This 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.

The Managing Director/ Chief Executive Officer, SUNU Assurances Nigeria Plc, Samuel Ogbodu, said the company successfully completed the first phase of its recapitalisation plan by increasing its shareholders’ fund to N6.61bn in 2020 from N3.47bn in 2019.

NSIA Insurance also said it successfully completed the phase 1 of its recapitalisation exercise to fulfil the requirements for the mandatory minimum paid-up share capital policy for a composite insurance firm in Nigeria.

FBN General Insurance said it was one of the few general insurance businesses to meet the first phase of recapitalisation before the directive was put on hold.

Lasaco Assurance Plc also said it scaled the first hurdle of the recapitalisation before the suspension.

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 and reposition the industry for accelerated growth and development.

In adopting risk based capital adequacy template, the Chairman, NIA, Mr Ganiyu Musa, said 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).

He hinged the association’s position on the 2013 IMF report on the Nigerian insurance industry which prescribed the risk based capital model as most suitable for the Nigerian insurance market.

According to him, the IMF report was duly acknowledged and admitted by the National Insurance Commission as the right capital framework for the market, as it sought to limit the capital required by operators to the level of risks they can carry.

When the Bill is eventually signed into law in line with this proposal, he said, 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 recapitalisation.

“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 has prescribed it and the commission agreed with it,” he stated.

He added that this would also align the definition of insurance with the various positions such as International Association of Insurance Supervisors recommendations.