Insurance Firms’ Assets Hit N2.09trn Amidst Recapitalisation Suspension
The insurance sector’s total assets have risen by N228.24bn in 15 months despite the abrupt suspension of the National Insurance Commission’s segmented recapitalisation exercise.
The second and final phases of the Nigerian insurance industry’s recapitalisation exercise which should have ended in September 2021 was halted by litigation from aggrieved stakeholders.
However, latest figures obtained by our correspondent showed that the sector’s total assets rose by N228.24bn from N1.8tn in June 2020 to N2.09tn as of September 2021.
The industry regulator, the National Insurance Commission, had introduced new and segmented minimum paid up share capital requirements for insurance companies in Nigeria in June 2020.
Data obtained on Sunday from the Central Bank of Nigeria on ‘Insurance sector (general and life) consolidated balance sheets) for third quarter 2021’ also showed that the industry’s assets rose from N1.16tn as of the end of December 2017 to N1.26tn and N1.45tn as of the end of December 2018 and 2019, respectively.
A NAICOM circular to all insurance companies on June 3, 2020, titled, ‘Segmentation of minimum paid up share capital requirements for insurance companies in Nigeria’, mandated underwriters to meet the deadline for the first phase of the recapitalisation exercise, which was slated for December 31, 2020. The final deadline was September 30, 2020.
Life insurance companies were ordered to raise their capital from N2bn to N4bn at the end of the first phase and N8bn at the end of the second phase.
General insurance companies were ordered to increase their capital from N3bn at the end of the first phase and N5bn at the end of the second phase.
Composite underwriters were ordered to raise their capital from N5bn to N9bn at the end of the first phase, and to N18bn at the end of the second phase.
The reinsurance firms were ordered to raise their capital from N10bn to N12bn at the end of the first phase, and to N20bn at the final phase.
However, pending litigation by some aggrieved companies allegedly using their shareholders against the commission forced NAICOM to suspend the recapitalisation exercise after the first phase.
Although the commission won the judgement instituted against it at the Federal High Court in Abuja, another pending case in a Lagos High Court forced the regulator to suspend the recapitalisation programme.
During the public hearing on Consolidated Insurance Bill 2020 organised by the House of Representatives Committee on Insurance and Actuarial matters in Abuja, the Nigerian Insurers Association recommended the introduction of Risk-Based Capital in the Consolidated Insurance Bill.
It described it as the right capital model for the insurance industry in order to align the Nigerian insurance market with international best practices.
In adopting risk-based capital adequacy template, the association took cognisance of the need to consider insurance risk, market risk, credit risk, and operational risk as well as the need to apply such capital charges on assets and liabilities (all capital resources inclusive).
It hinged the position on the 2013 International Monetary Fund report on the Nigerian insurance industry which prescribed risk-based capital model as most suitable for the Nigerian insurance market.
The association argued that the IMF report was duly acknowledged and admitted by NAICOM as the right capital framework for the market, as it sought to limit the capital required by operators to the level of risks they could carry.
When the bill is eventually signed into law in line with the proposal, it is expected to lay to rest the contentious issue of the definition of capital which has been a major point of the association’s engagements with NAICOM on the recapitalisation exercise.
“We are convinced that risk-based capital adequacy template is the best fit for the insurance industry in Nigeria especially given the fact that the 2013 IMF report had prescribed it and the commission agreed with it,” the NIA stated.
The NAICOM had identified one of the reasons for introducing the recapitalisation exercise in the industry as an effort to strengthen the performing firms and sieve out the non-performing ones.
It stated that some underwriting firms already had liquidity problems and were not meeting their claims obligations.
However, the Commissioner for Insurance, NAICOM, Mr Sunday Thomas, urged insurance companies to take the insurance of claims settlement seriously, saying it was necessary to boost the image of the industry.
At an event for insurance companies recently, Thomas said, “One issue that has been setting the industry on a reverse gear in its developmental efforts is the issue of claims settlement. A few among us have been making this work a tedious one by not paying claims promptly.
“We should know as a fact that insurance business is about payment of genuine claims and anything short of that will continue to hurt insurance business in the country thereby giving the industry poor reputation, perception and image.
“I urge you to look at this issue at your level and deal with it decisively as it has continued to give the industry a bad name.”
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