Analysts fear more oil and gas risks will leave offshore in new Tier-based capital
If the October 1, 2018 implementation date for the Tier-based solvency capital recently announced by the National Insurance Commission (NAICOM) holds, the industry might lose larger share of the domestic oil and gas risks to offshore reinsurers, analysts have said.
The arguments is based on the fact that if only about six insurance companies make it to Tier one, at the end of the Tier assessment exercise being conducted by the Commission, it means that they few Tier one survivors will have to take just certain percentage of the total domestic risks, particularly the NNPC Consolidated Oil and gas accounts for general business.
According to the analysts, the few companies will take percentage based on their risks appetite, so the other portion left, which other insurance companies had shared in the past before they were screened out, will be left for placement abroad.
“You know that these companies will also watch their capital, so they can’t afford to take more than they can swallow, one of the analysts said.
The analysts further stated that this however will be in the short run of about one year, till NAICOM clears more firms that will be raising new capital to up their Tier level (Tier One) in July of 2019, according to the timetable.
The analysts also commended the NAICOM’s initiatives to embark on the Tier based classification, but stated that it is short timed but would have gained more traction if operators were given some time to raise funds.
Meanwhile, BusinessDay learnt on Monday that NAICOM has released Tier assessment advice to companies, with fears that only five firms made the Tier one list.
NAICOM in recent circular signed by Barineka Thompson, director, Supervision Directorate on behalf of the commissioner for Insurance announced take-off date of now 1st October 2018.
“In the exercise of the powers conferred on the Commission under extant laws, it hereby issue this circular for the introduction of the Tier–Based Minimum Solvency Capital Requirements, for assessment of capital adequacy and solvency control levels of all insurance companies in Nigeria, with effect from October 1, 2018.”
The circular further reads that, all insurance companies are required to ensure strict compliance with these circular by formally directing their staff to comply.
“Only companies that meet the respective Tier requirements shall lead on new businesses in those categories with effect from October 1, 2018. Any case of violation shall attract penalty equal to the sum of the advised gross premium involved and in addition, the CEO and other relevant Officer(s) of the insurer shall be penalized as the Commission may “determine.”
On the basis of assessment, the circular further said that companies shall be assessed in the first instance on their approved financial statement for 2017, and/or audited half year accounts for 2018. However, where a company is yet to obtain approval for its 2017 financial statement, its last approved audited accounts will be used for the assessment.
“Where in the event of an assessment failing below higher Tiers, such that an insurer does not meet the commensurate capital requirements, the insurer shall continue to service the obligations on the existing policies of the higher Tiers which are yet to expired, or arising on risks underwritten up to September 30, 2019 or until all obligations on them are exhausted, except in the case of annuity or other life businesses.”
“All insurer that do not meet Tier 1 or 2 minimum solvency capital requirements but presently underwrites businesses in those Tiers, may however continue to participate in existing specific policies on facultative insurance basis up to December 31, 2019.”
“In the case of annuity or other life businesses, the process of portfolio transfer must be incepted within six months from the date of conveyance of Tiers assessment and concluded not later than one year and twelve (12) months for any subsequent re-categorization.” “
“At all times, an insurer shall not underwrite insurance policies or undertake risks outside the Tier Level of a risk class or combination thereof in the case of a composite insurer, that is authorized by the Commission. Any case of violation shall attract penalty equal to the sum of the advised gross premium involved and in addition, the CEO and other relevant officer(s) of the insurer shall be penalized as the Commission may be determine.”
In the new Tier-Based Minimum Solvency Capital, Tier 3 companies are those that falls within existing paid up capitals of N2 billion for life business; N3 billion for non-life business and N5 billion for composite business.
Companies in this category will be limited to underwrite only risks in life business in the following areas – Individual Life, Health Insurance, Miscellaneous Insurances; while for non-life they will be limited to underwrite risks in these areas – Fire, Motor, General Accident, Engineering (only classes covered by compulsory insurance), Agriculture and Miscellaneous Insurances.
Tier 2 companies are those whose paid up capital has increased by 50 percent above the existing minimum capital.
For life business, their paid up capital will be N3 billion and they are to underwrite all Tier 3 risks and Group Life Assurance (GLA); while for non-life, their paid –up capital base will be N4.5 billion and they will underwrite all Tier 3 risks, Engineering (All inclusive), Marine, Bonds Credit Guarantee and Suretyship Insurances.
Tier 1 companies are those whose paid up capital has increased by 200 percent, above the existing minimum requirement. Life companies in this category will have capital of N6 billion, and will underwrite all Tier 2 risks and Annuity. While for non-life business, the paid up capital will be N9 billion, and will underwrite all Tier 2 risks and Oil & Gas (oil related projects, exploration & production), and Aviation Insurances.
Composite companies in Tier3 will maintain N5 billion; Trier 2 N7.5 billion and Tier 1 will have N15 billion.
Modestus Anaesoronye