Rotimi Okpaise, others canvass for capital adequacy, increased returns to attract investment
As the nation’s insurance industry seeks to increase relevance, penetration, contribute reasonably to economic growth, compete in the financial services sector through improved service, stakeholders in the sector have advocated for adequately capitalised companies and offering reasonable returns on capital.
They believe that good returns on capital would attract more investment into the sector and make it competitive among its peers in the financial services industry locally and internationally.
The stakeholders who offered their thoughts at the recently concluded 2017 Insurance Professional Forum held in Abeokuta with the theme “Solvency, Stability and growth Exploring Possibility” hammered on the need for capital adequacy to confront distortions and fluctuations in the business environment.
Rotimi Okpaise, Partner in Actuarial Services at EY Nigeria speaking on the topic “Capital Adequacy and Other Solvency Options in Economic Downturn” said recent (worldwide) happenings in the financial sector have led to Regulators/Boards/Management of insurance companies to have a firm focus on each entity’s availability of capital, otherwise called capital adequacy.
He said there are loud whispers on how to meet claims, continue trading in adverse situations and what should be done to mitigate undue company/industry exposure.
Okpaise described capital adequacy to mean the sufficiency of available free “capital” (Shareholders Funds) within an enterprise to amongst others, finance aadverse occurrences, carry out expense, investment, market expansion, improve infrastructure, quality human capital as well as regulatory requirements.
He advised the insurance industry to innovate and use the capital to expand their business base and increase penetration.
“Make our industry more attractive through emphasis on investment returns on capital and position ourselves to pay dividends and increase shareholders worth.” Ogala Osaka, chairman of the plenary session said “For us in the insurance industry, the issue of capital adequacy is becoming more important because of fluctuations in the business environment”
While pointing the there is no regulator that will allow capital erosion, advice industry regulators to review capital from time to time, carry out stress test to know capacity of companies to meet their obligations.
Osaka also emphasized the need for returns on capital, stating that it should be paramount in companies’ policy focus.
Muftau Oyegunle, who linked capital erosion in the industry to lack of corporate governance structures in some companies, said Board and managements have a role to play to protect shareholders fund.
“We need to raise the level of corporate and risk management in our business”.
Pius Apere, making a suggestion from the floor during question and answer section, requested the regulator to come up with a model for implementation of Risk Based Capital, while companies will also set up internal models to drive the process.
He said Nigeria could borrow the experience of the UK market for a smooth implementation process, while applauding the National Insurance Commission (NAICOM) plan to test-run the process with 10 companies at first.
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