INSURANCE companies yesterday got a 13-month ultimatum from the National Insurance Commission (NAICOM) to recapitalise or lose their licences.
The ultimatum, which became effective from yesterday, raised the minimum paid-up share capital of a Life insurance company from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion.
The Nation learnt that Re-insurance companies had been directed to raise their capital base from N10 billion to N20 billion.
With the directive, the capital injection requirement has risen by 400 per cent (Life); 333.33 per cent (Non-Life); 360 per cent (Composite) and 200 per cent (Re-Insurance).
The directive was contained in a circular issued by NAICOM to Chief Executive Officers and Managing Directors of insurance companies, mandating them to comply on or before June 30, next year.
The circular, however, exempted and micro insurance companies.
It (circular) reads: “In 2005/7, the insurance industry witnessed its last capitalisation and despite the astronomical increase in value of insured assets, consequent exposure to higher level of insured liabilities and operating cost of insurers, the same capital continued to rule in the industry.
“In the exercise of the powers conferred on the commission by the enabling laws, the minimum paid-up share capital requirement of insurance and reinsurance companies in Nigeria is hereby reviewed. The circular shall apply to all insurance and reinsurance companies except Takaful and micro insurance companies.
“The new minimum paid-up share capital shall take effect from the commencement date of this circular for new applications while existing insurance and reinsurance companies shall be required to fully comply not later than June 30, 2020.
“The provison, in respect of the requirement of statutory deposit as stipulated in Part III, Section 10 of the Insurance Act 2003, shall apply on the effective date of commencement of this circular.”
An insider source told The Nation that the new recapitalisation order was different from the Tier Based Solvency Capital Recapitalisation (TBMSC) introduced by the regulator in July, last year and rejected by operators and shareholders.
The source posited that the tier based plan that was introduced last year was not backed by law, reason why some operators and shareholders could revolt against the commission.
The Nation reported yesterday that there was an uneasy calm between the NAICOM and operators following the recent cancellation of some policies, leaving the industry with no new direction.
The policies were meant to help the regulator shape the industry’s performance.
On July 25, 2018, NAICOM introduced the TBMSC that would have made companies recapitalise and have good rankings under the Tier 1, 2 and 3 categories of the TBMSC plan. The plan was later cancelled in November by the regulator.
The Commissioner for Insurance, Mohammed Kari, said the recapitalisation scheme was aimed at developing and applying appropriate tools that consider the nature, scale and complexity of insurers, as well as non-core activities of insurance groups, to limit significant system risk and thereby achieve soundness of companies and contribute to the achievement of stability of the financial system.
NAICOM said the policy would allow insurers to focus on their areas of strength; improve settlement of claims; enhance local retention; encourage market discipline, prudence and appropriate pricing; encourage innovation and deepen market penetration; encourage voluntary mergers, and build investors’ confidence; and build a stronger and more vibrant insurance industry.
But some insurers through their shareholders kicked against it, leading to the cancellation of the policy by the regulator.
In the same vein, the commission introduced the State Insurance Producers (SIP) policy which would have granted States in the country operational license to sell insurance products.
The policy seeks to enforce compulsory insurance and deepen penetration and create jobs. But the policy guideline pitted brokers against the Commission.
The move has sent jitters down the spine of operators, especially brokers, who fear that the addition of states as insurance intermediaries might throw them out of business.