Some stakeholders in the insurance sector have stated that the proposed recapitalisation would create new barriers to entry but could also benefit the sector regardless of the outcome.
This was disclosed in separate chats with The PUNCH.
The immediate past President of the Chartered Insurance Institute of Nigeria, Edwin Igbiti, noted that it would introduce fresh barriers to entry in the sector, which was struggling with low penetration.
“Comparing us with other countries in Africa, you will realise that we are the ones with the highest base as an industry. My argument has been that, as much as we all agree, we need capital to run the business. Excess capital is counterproductive because, at a minimum, you are expected to make a turnover of your capital about 10 times and if you cannot have that, it means that you are not sweating the capital and that has been a challenge.
“We have been complaining about the penetration rate and it is about inclusivity. In the retail space, there is no need for much capital. It is those who are involved in oil and gas, property that is of value but retail space with a small sum insured. Therefore, capital in that segment is what we can retain in its entirety.”
A new bill, entitled ‘Nigeria Insurance Industry Reform Bill 2024’, was introduced on the floor of the Senate recently, seeking to increase the minimum capital base of the insurance companies.
According to the bill sponsored by the Chairman of the Senate Committee on Banking, Insurance and Other Financial Institutions, Tokunbo Abiru, and 41 other senators, the minimum capital requirement of life insurance companies would rise from the current N2bn to N15bn, and general business from N3bn to N25bn.
The reinsurance business’ capital will move from N10bn to N45bn.
The bill has passed the second reading in the Senate.
Igbiti posited that the move may be to encourage mergers and acquisitions in the sector, thus, bringing about stronger firms.
“What I perceive that the regulator wants to achieve is that they want to encourage mergers. This move is tantamount to, if you cannot do it alone, looking for someone and merging, thus, reducing the number of players and becoming a barrier. At the moment, if we should check the minimum capital in the industry, how many companies have that cash? And what is the turnover with the capital that they have?
“However, if you set the minimum capital to be high, you have introduced a barrier to entry and that is why you will question what the essence of our risk-based supervision is.
“To safeguard the regulator, I feel that they would prefer to have the minimum capital be high. If everyone playing in a certain segment is like this, then, their risk-based approach means that they are not operating higher than that. If you observe, what they are now saying is either that minimum capital or the risk-based recommendation,” he said.
The Chief Executive Officer of the Nigerian Council of Registered Insurance Brokers, Tope Adaramola, maintained that it should have been expected that the insurance sector would take a cue from the recapitalisation exercise in the banking sector, which was announced in March and had already commenced.
Adaramola highlighted that the issue of recapitalisation had been on the table in the insurance sector for quite some time, with strong arguments for and against it.
He said, “Those who believe in higher capitalisation believe that it would help and the insurance companies believe that it would be a position to be able to expand and underwrite strategic risk, which, hitherto, they do not seem to have the capacity to underwrite and for which it is being taken abroad.
“Some operators feel that higher capitalisation may not necessarily be a fillip for deepening the industry. And that is why the emphasis has been on risk-based supervision, risk-based consideration, and risk-based solvency for the industry.”
He argued that with the government’s leaning towards recapitalisation, ample time should be given for the process.
“As things are going, the government seems to be more attuned to increasing the capital. It will also have implications—positive implications. If that is the way to go, adequate time should be given for this type of capital raise to take place. As we speak today, some companies are almost; without trying to take the wind off the sail of the government with regards to this matter, large in their capital base.
“For those that are still struggling towards it, they should allow for ample time, maybe not less than two years, for these companies to be able to adequately get their acts together and do their prospecting so that you will have a very seamless exercise. But whatever it is, it is a good discussion; it is a good thing that we are looking at growing the industry,” the NCRIB CEO said.
He maintained that the move ultimately showed the resolve to make the insurance industry play very strong catalytic roles in the economic development of the country and conform to the agenda of reflating the economy through the insurance industry.
Already, some companies in the industry have expressed a preparedness for capitalisation, even as shareholders demand answers at the annual general meetings.
Responding to questions from shareholders at its 54th annual general meeting, the Chairman of Prestige Assurance Plc, Mrs Funmi Oyetunji, broke down the different scenarios for shareholders and what the company would be looking for.
She said, “In the first scenario of them not allowing retained earnings and contingency reserves, in that case, we will be looking for extra billions because we stand at N6.62bn. But if those other two are included, we will be looking for a lower amount. We hope that it will be a N10bn but if it goes to N25bn, we are also hoping that enough time will be given.
“What are our plans? We are already discussing it and if we are looking for N18bn or N13bn, it is to go to private placements, people like IFC. We will also be looking at rights issues. So, we are coming back to you with a public offer to issue fresh shares. We are looking at all of these and discussing and consulting with NAICOM and the industry.”
When similar concerns were raised at its AGM, the managing director and CEO of Cornerstone Insurance Plc, Stephen Alangbo, expressed optimism, saying, “We are well positioned for any recapitalisation measures the regulator may introduce. We believe that this will enhance our financial stability, expand our underwriting capacity, and allow us to invest in new technologies and innovative products.”
Alangbo said it would also help the industry attract top talent, deliver robust returns to shareholders, and support community development initiatives while ensuring the provision of greater value to all our stakeholders.
Meanwhile, the Nigerian Insurers Association has expressed opposition to the minimum capital requirements.
At a public hearing on the bill held at the National Assembly in Abuja recently, the Chairman of NIA, Kunle Ahmed, proposed a minimum capital of N8bn for life business; N10bn for non-life, and N20bn for reinsurance and the implementation of a risk-based capital regime that would enable them to undertake risk in line with their capital.
He said, “Insurance is an international business, and we need to consider what is obtainable in other countries, even within Africa. I agree that it (the capital base) determines your retention, but it is not the single determinant of your capacity.
“What we risk is that we are going to have insurance companies that are not deepening their insurance business in Nigeria, but are just sitting down and investing the money that they have in other things. I believe that we should focus a lot more on deepening insurance in Nigeria.”