The new capital base for old and prospective insurance companies as announced by the National Insurance Commission (NAICOM) has thrown confusion into the insurance sub-sector as local players have expressed fears over this development.
Investigation by The Nation revealed that since NAICOM set the new benchmark, majority of the insurance companies operating in Nigeria, who may not be able to raise new capital base have considered other options top of which is going into mergers and acquisitions, job cuts, raising rates, etc.
NAICOM had announced on May 20, 2019, a new capital regime for all categories of insurance companies in Nigeria.
In a circular by NAICOM’s Director, Policy and Regulation Directorate, Mr. Pius Agboola, on behalf of the Commissioner for Insurance, Alhaji Mohammed Kari, the Commission had said the new capital regime would take effect from June 30, 2020 for existing insurance and reinsurance firms, but with immediate effect for new firms entering into the business.
Under the new capital regime, life insurance underwriting firms, which currently have a minimum paid up share capital of N2 billion, will compulsorily shore up their capital to N8 billion, representing a 200 percent increase while firms underwriting general business will by the new paid-up share capital regime, shore up their capital from N3 billion to N10 billion.
Composite insurance firms, that is, firms underwriting both life and general business will have to raise their capital from the current N5 billion level to N18 billion. Reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion.
In their bid to meet the commission’s demands, the insurance operators turned to the foreign investment markets in search of investors and technical partners to inject funds and technical expertise into their operations. Besides, many foreign businesses are already making incursion into the nation’s insurance sub-sector.
Investigation by The Nation revealed that already foreign investors from Europe, America and South Africa are directing their reserved funds into the Nigerian insurance market to take advantage of the new capital regime and indigenous operators’ inability to raise funds from the Nigerian stock market to extend their business portfolios.
According to NAICOM, more than 12 foreign investors have ventured into the country to acquire new firms between 2012 and 2018.
Expectedly, not many people are excited about foreign participation in the nation’s insurance space. Speaking in an interview with Mrs. Oyinkansola Olasanoye, the National President Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) in an interview with our correspondent at the weekend gave a bird’s eye view of how the new policy regime will affect jobs, careers as well as the country’s image as a country.
While expressing fears over the dire consequences of the policy, she said, “Indirectly they are making our country to lose our assets and it is like a second colonisation, because everything that Nigeria owns will soon be taken over by foreign investors, and when it comes to employees, we are going to lose our members because all these insurance companies will send them into mergers and acquisitions but no one of them will get investors, so you are appealing to the government that wants due process and have been discussing with this union and giving these members their entitlements and another phase of life to look forward to.”
Also commenting, Mr. Adeleke Odude, Managing Director, Lektol Insurance Brokers Limited, said, “The issue and the challenge is that, first and foremost, the economy is not encouraging it although in the long run it will pay the insurance company but right now there are some challenges that the insurance company is presently facing.”
Raising some posers, he queried, “If we increase, do people have the money to put into the economy to buy shares on insurance? If not the consequences will be that there will be external investors who want to take advantage of the economy.”