Home Business Merger & Acquisitions loom in Nigeria’s insurance sector over N15b new capital...

Merger & Acquisitions loom in Nigeria’s insurance sector over N15b new capital base

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There are indications that the National Insurance Commission (NAICOM) may soon increase the capital base of insurance firms to about N15 billion,

At present, the minimum capital requirement of life insurance firms is N2 billion, non-life N3billion and composite N5 billion.

Sources within the industry revealed that the commission may soon mandate insurance firms to recapitalise or merge to meet the new capital requirement.

This time, the recapitalisation will be compulsory unlike the optional window introduced by the commission through the Tier-Based Minimum Solvency Capital (TBMSC) policy, which was rejected by the operators and later withdrawn by the commission.

Although the Commissioner for Insurance, Mohammed Kari has been silent on the issue, sources said the commission was working underground to bring the new recapitalisation to fruition soon.

Kari had, before the cancellation of the TBMSC, said there was the need for insurance firms to recapitalise.

According to him, the industry witnessed the last recapitalisation between 2005 and 2007 and that since then, the operating environment had witnessed series of turbulence and uncertainties.

He said immediately after the 2005 and 2007 exercises, the 2008 global financial crisis hit the sector with heavy consequences on insurers.

He stated that this was followed by significant upward increase in risks arising from macro-economic environment, such as inflation rate, interest rate and devaluation of the currency.

These, he said, led to an increase in the current value of insured assets and operating cost of insurers. Yet, the same regulatory capital continued to rule and no significant increase in shareholders’ funds of many insurers.

He said: “As insurers continue to take too much risk with their little capital, coupled with the twin risks arising from impairment of certain assets and inappropriate pricing of insured risks, there has been an increasing inability of many insurers to honour contractual commitments to the insured and the shareholders.

“Guided by the provisions of extant laws and international best practice, the Commission has identified underlying trends, some of which were enumerated above; and has accordingly, considered and hereby prescribed Tier-Based Minimum Solvency Capital for insurers on the basis of their respective risk profiles and their risk management systems.”

Kari said recapitalisation would bost the soundness and profitability of insurers, support the stability of the financial system and increase insurance contribution to the nation’s Gross Domestic Product (GDP); and limit significant systemic risks and build confidence in the industry, THEREBY ensuring the stability of the insurance sector.

He stressed that the commission’s goal is to ensure the safety and soundness of insurance institutions.

“Our goal is also to facilitate the stability of the sector, secure protection of policyholders and public interest; promote optimal development of the insurance market; and engender public trust and confidence in the insurance system,” he added.

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