The recapitalization of Nigerian banks has put insurance companies on alert, as shareholders anticipate the need for insurers to raise capital in the near future.
Shareholders have warned that if the proposed insurance industry bill currently in the Senate is passed, insurers may soon face pressure to increase their capital.
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They urged insurance companies to proactively develop strategies for raising funds before any regulatory mandates are issued, noting that the best time to recapitalize is now.
Sunny Nwosu, a prominent shareholder, speaking at an insurance company’s annual general meeting (AGM) in Lagos, said, “You need to start planning on how to raise your capital, as this will likely become necessary with the new proposed bill.”
Nwosu cautioned that it will be challenging for insurers to compete with banks for investors, emphasizing the importance of having the right strategies in place.
Boniface Okezie, national coordinator of the Progressive Shareholders Association of Nigeria (PSAN), stressed the need for insurers to start building reserves to strengthen their capacity.
“Insurance companies must start looking ahead regarding recapitalization to ensure they are prepared when the time comes,” he said.
Nigerian insurance companies may soon face a new minimum capital requirement that could exceed a 650% increase if the insurance bill is passed by the National Assembly.
The new legislation, titled the ‘Nigeria Insurance Industry Reform Bill 2024,’ which has already passed its second reading in the Senate, seeks to raise the minimum capital requirement for life insurance companies from the current N2 billion to N15 billion, and for general business from N3 billion to N25 billion.
Reinsurance business capital would rise from N10 billion to N45 billion, according to the proposed bill, as reported by BusinessDay.
The Nigeria Insurance Industry Reform Bill 2024 (SB 393) is sponsored by Mukhail Adetokunbo Abiru, chairman of the Senate Committee on Banking, Insurance, and other Financial Institutions, along with 41 other senators.
In his lead debate on the Senate floor, Senator Abiru explained that the bill aims to establish a comprehensive legal framework for regulating and supervising all types of insurance businesses in Nigeria.
He emphasized the urgent need to address the low penetration of insurance services in the country, which currently stands at just 0.5%, ranking 70th globally and 5th in Africa.
Abiru, an economist and former bank CEO, highlighted Nigeria’s young and dynamic population and growing GDP as signs of the industry’s significant growth potential.
Stephen Alangbo, managing director/CEO of Cornerstone Insurance Plc, discussed the company’s future plans, stating, “We are well-prepared for any recapitalization measures that regulators may introduce.
We believe this will enhance our financial stability, expand our underwriting capacity, and allow us to invest in new technologies and innovative products.”
Alangbo also noted that these measures would help the industry attract top talent, deliver strong returns to shareholders, and support community development initiatives while providing greater value to all stakeholders.
Section 15 (1) of the new bill stipulates that no one shall conduct insurance business in Nigeria unless the insurer maintains a minimum capital requirement, which, for non-life insurance, is set at the higher of N25 million or risk-based capital as determined by the Commission.
For life insurance businesses, the required capital is the higher of N15 million or risk-based capital determined by the Commission. For reinsurance businesses, it is the higher of N45 million or risk-based capital, according to the bill.
In determining the required risk-based capital, the National Insurance Commission (NAICOM) will consider factors such as insurance risk, market risk, credit risk, and operational risk, applying capital charges on assets and liabilities as determined from time to time.
For the purpose of this section, “‘Capital charge’ refers to the proportion of capital required to account for the potential decline in the economic value of an asset and the uncertainty in estimating liabilities due to adverse events.”
The minimum capital requirement outlined in subsection (1) may, in the case of a new company, consist of one or more government bonds and treasury bills, while for an existing company, it shall consist of excess assets over liabilities, excluding the company’s own shares; and minimum capital requirements; subordinated liabilities subject to approval by the Commission; and any other financial instruments as may be prescribed by the Commission from time to time, the bill further states.
“An insurer registered before the commencement of this Bill must comply with these requirements within 12 months of the Bill’s enactment.
“The Commission will cancel the registration of any insurer or reinsurer that fails to meet the provisions of subsection (2) as it relates to their category of operation; and within 30 days after the expiration of the period specified in subsection (4), publish a list of all insurers that have complied with these provisions.”
