NAICOM’s suspension of Tier-based recapitalisation douses tension

Pressure and tension that had enveloped many insurance companies in Nigeria as result of the regulatory implementation of Tier-Based Minimum Solvency Capital (TBMSC) policy earlier introduced by the National Insurance Commission (NAICOM) has come down following last Thursday’s suspension of the exercise over court injunction.

From sourcing of fresh capital, to mergers and acquisitions talks, as well as not going to participate in certain classes of risks particularly oil and gas, aviation, annuity and group life businesses for the 2019 business year following the Tier classification, a number of companies have been in confusion.

But last Thursday’s suspension of the policy over pending court injunction instituted by a group of shareholders has paved the way for the disadvantaged insurers to firm up their strategies and position themselves for the Tier level they want to play in the long run, as well as to enable them participate in top class risks that were to elude them, if the October 1, 2018 implementation deadline had stood.

NAICOM on Thursday issued a circular suspending the implementation of the Tier-Based Minimum Solvency Capital (TBMSC) Policy for the insurance industry, pending the determination of the suit filed against the policy by a group of shareholders.

NAICOM in the circular to all insurance institutions in Nigeria signed by Leonard Akah, director, Authorization & Policy, on behalf of the Commissioner for Insurance  said  “In compliance with the extant rules and the injunction issued by the Federal High Court regarding the Tier Based Minimum Solvency Capital Framework, which was to take effect from October 1, 2018, the Commission wishes to clarify that the status quo will be maintained and insurers are to continue to operate on the subsisting regulatory framework prior to the circular.”

The Commission also said in the statement that appropriate regulatory directive would be advised upon conclusion of the suit.

A federal High Court in had on September 13 ordered NAICOM to stop the implementation of its proposed minimum solvency capital policy scheduled to take effect pending the expiration of a 30-day pre-action notice.

Justice Muslim Hassan gave the order in a class action brought by some shareholders of insurance companies in Nigeria, challenging the new minimum solvency capital policy proposed by the NAICOM.

At the hearing, counsel to the applicant, Bert Chucks Igwilo, told the court that they had filed and served e NAICOM a pre-action notice on Sept 6. Justice Hassan gave the order and adjourned further hearing to Oct 8.

NAICOM had on July 25, 2018 released a guideline for implementation of the TMBSC, and thereafter announced October 1, 2018 deadline, which was resisted by a set of stakeholders, resulting to legal action against the Commission.

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.