Against the backdrop of financial soundness of insurance and reinsurance companies in Nigeria, the National Insurance Commission (NAICOM), the sector’s regulatory body may deploy the much touted Risk Based Supervision (RBS) and Risk Based Capital (RBC) to arrive at the appropriate capital base for individual operators in the sector.
This is as the reformed insurance bill continues to receive the attention of the Committee on Insurance and Actuarial Matters at the National Assembly preparatory to the passage of the long awaited bill into law.
With the ongoing consultation by the NAICOM across key stakeholders including operators, Daily Independent reliably learned that there might be a new capital increase under the risk based supervision (RBS).
This, it is stated, would allow an insurance company to do business based on its risk appetite and also have adequate capital to deliver value for stakeholders and meet claims settlement obligations.
Although the insurance industry players have commenced some form of engagements to negotiate for a safe landing over the proposed new capital base of N15billion, N25billion and N45billion for life business portfolio, non-life business and reinsurers respectively, as proposed in the in the Reform Insurance Bill 2024, it is most likely that the regulator may settle for RBS at the end of the day.
While industry players are opting for a Risk Based Supervision where an insurance company would play according to its risk appetite as the best option for the sector, the NAICOM may also consider a new capital increase from the current capital framework to ensure financial soundness and solvency status of all the companies under its supervision.
While adequate capital is considered a necessity given the current capital erosion occasioned by current inflation rate at over 34 percent and foreign exchange rate of over N1,600/$1, the industry is poised for risk based capital regime as an antidote against forced capital increase.
This, our finding reveals, despite the contentions, differences and rising tempo which continue to gather momentum from various quarters, both regulator and the insurers have seen the need to align with current realities that the industry has remained a poor cousin of the banks owing to operators’ opposition to growth.
Speaking to the issue of capital increase with our correspondent in Lagos recently, Mr Segun Omosehin, the Commissioner for Insurance and Chief Executive Officer at NAICOM noted that one of his key priorities is to see over soundness of insurance operators who can meet their financial obligations at all times.
“One of our key priorities has to do with the soundness of our operators. We want to see our operators meet their obligations and this involves taking some creative actions and ensuring that we do proper oversights of these entities. It may also involve lifting the minimum capital to a level that can encourage some level of comfort in the sector.
The desire is to see an industry that is respected and can meet their obligations. We are very mindful of the positions we have while also desire to see the sector that is financially sound.
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One key mandate of a regulator particularly the financial services sector is ensuring that there is stability in the financial system. And that is one key area we are committed to,” said Mr Omosehin.
Giving this development, the operators are gearing up for Right Issues and/or public offer to beef up companies’ liquidity base and position themselves for the exercise should an official announcement on new capital increase is made by the regulator anytime.
Daily Independent findings reveals that most insurance companies have so far commenced some strategic merger talks with their like-minds while some have already concluded the first phase of merger deal by signing a memorandum of understanding (MoU).
Troubled over the situation, shareholders at 2023 annual general meetings have urged the boards and managements of their companies to begin to tinker on the best option to adopt in raising the capital and proactively position the firms for the exercise in order not to be taken unawares.
Responding to the shareholders demand for action, Segun Adebanji, chairman board of directors, Cornerstone Insurance Plc at the firm’s 32nd AGM had dismissed the shareholders’ fear assuring that the board and management were already working towards the exercise.
Reports have it that the Nigerian Insurers Association (NIA) has already opposed the minimum capital base of N25 billion; non-life insurance business; life business N15billion and reinsurance N45 billion, proposed in the Reform Insurance Bill.
At the public hearing on the Bill held at the National Assembly in Abuja, Kunle Ahmed, the Chairman of NIA has proposed a minimum capital of N8 billion for life business; N10 billion for non-life and N20 billion for reinsurance and the implementation of Risk-Based capital regime that would enable them undertake risk in line with their capital.
He was quoted as saying that the Nigerian insurance sector was not large enough to support the proposed increases in capital requirement without significant adverse effects.
“Insurance is an international business, and we need to consider what is obtainable in other countries, even within Africa,” Ahmed posited.
Shola Tinubu, former president of the Nigerian Council of Registered Insurance Brokers (NCRIB) and managing director and chief executive officer, Scib Insurance Brokers Limited, had in an occasion in Lagos warned against forced minimum capital base increase. According to him, companies should be allowed to, on their own, decide what level of capital suitable for their risk appetite as against imposed capital which will be raised without strategic investment directions.
Ben Ujoatuonu, managing director and chief executive officer at Universal Insurance Plc observed that the inflationary trend coupled with high foreign exchange regime the country is facing, the current capital has been eroded when exchanging it with the United States dollars.
He, in addition, noted that even the premium revenue windfall experienced by the operators in recent years is only huge in naira terms and not when converted to other competing currencies globally.
