Insurers in emergency board meetings over new capital requirements
The announcement by the industry regulator, the National Insurance Commission (NAICOM) recently on the Tier-based recapitalization, in line with the sectors risks based solvency capital is causing jittery among insurance companies’ boards and management.
BusinessDay findings show that insurance companies’ boards are urgently convening meetings to get proper interpretation of the new directive, and also put in place strategies on how to go about it.
NAICOM by the recapitalization timetable has given directors time frame on when to meet and communicate to the commission, what they have decided on which Tier-level their company will play.
Transition guideline according to the commission will be released 3rd August 2018; while issuance of notification letters (Tier assessment Advice to all operators) on assessed capital level will be given on 13th – 17th August, 2018. Submission of Board’s decision by operators (on choice of Tier-Level) will be sent to NAICOM not later than 14th September 2018.
The new capital requirement, which will commence 1st January 2018, will require insurance companies willing to play big in the market to either raise fresh capital, embark on mergers and acquisition for higher Tier-levels, or remain with low level capitals and underwrite small premium risks.
Under the new capitalisation structure, life insurance firms need a capital level of N6 billion for Tier 1; N3 billion for Tier 2 and N2 billion for Tier 3: For non-life business, the requirement is N9 billion for Tier 1; N4.5 billion for Tier 2 and N3 billion for Tier 3. While for composite companies (combination of life and general business), the new capital requirement is N15 billion for Tier 1; N7.5 billion for Tier 2 and N5 billion for Tier 3.
The recapitalisation according to the Commission will also open doors for fresh licensing to investors willing to play in the higher Tier 1 capital levels. New license was issued eight years ago and FBNinsurance was the last license issued by the regulator.
According the Bareneka Thompson, director supervision at NAICOM, the recapitalization scheme is 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 systemic risk and thereby achieve soundness of insurance companies and contribute to the achievement of stability of the financial system.
The last recapitalisation in Nigeria took place in 2007 when the industry’s paid up capital was increased to N2 billion for life; N3 billion for non-life; N5 billion for composite and N10 billion for reinsurance.