2023 Elections Unsettling Insurance Industry Recapitalization

Economic downturn scuttling insurance industry recapitalisation — Business  — The Guardian Nigeria News – Nigeria and World News

Yemisi Izuora

Stakeholders in the insurance industry have expressed deep concerns about any success regarding the recapitalization exercise being driven by the National Insurance Commission (NAICOM).

Specifically, the timing has confounded analysts as raising capital at this time will unbalance the sector.

The regulator is working towards unveiling the Risk-Based Capital (RBC) roadmap that will steer the insurance industry’s new capital regime by the end of this month.

Key industry players currently unnerved also considered NAICOM’s timing in addressing the recapitalisation issue as unrealistic with some insurance executives saying that it is being discussed in the run-up to the 2023 national elections.

The Presidential and National Assembly elections are scheduled for February 2023 and going by experience in the run-up to elections, insurers found it difficult to raise money from investors because of the uncertain political and economic climate in the country.

The current minimum capital requirements for insurance companies date to 2007.

In the intervening period to date, the regulator has made attempts to recapitalise the sector. The latest such exercise started in 2019 but had to be extended for various reasons including the COVID-19 pandemic. The last deadline for meeting the revised minimum capital was 30 September 2021 but the exercise has been suspended because of lawsuits brought by stakeholders.

Commissioner for Insurance, Sunday Thomas, announced the RBC launch at a bi-monthly meeting earlier this month between the chief executives of insurance companies and NAICOM officials.

At such meetings, the parties discuss topical issues that affect the sector.

Industry analysts expect insurers to have to increase their capital because the high level of inflation in the country has affected the prevailing minimum capital base.

Insurance sector operators are desirous to see the contents of the roadmap and how it will affect their capitalisation plans even as some of the insurance firms are currently pursuing strategies to meet their long-term capitalisation objective after the last regulatory induced capital requirement was stopped by court order.

The risk-based capital roadmap is intended to be a regulatory standard and not necessarily the full amount of capital that an insurer would need to hold to meet its objectives.

It helps to identify weakly capitalized companies, which facilitates regulatory actions to ensure policyholders will receive the benefits promised without relying on a guaranty association or taxpayer funds.

With planned adoption of risk-based assessment for insurance companies in Nigeria, the regulator has foreclosed single capital requirement for players in the industry.

With the implementation of the policy companies will be required individually to capitalise based on their risk appetite and vision.

The Commission is currently building capacity with training and retraining of its staff for effective implementation of the policy.

“NAICOM is in the process of strengthening its regulatory oversight and risk management capabilities that will improve its internal capacity for assessment of emerging risks.” Thomas said.

It is also working on improving industry readiness assessment, implement own risk and solvency assessment (ORSA), internal capital models, solvency test, stress testing, incentivize effective risk management enablers.

According to the Commissioner, companies will be advised after a stress test on what is appropriate capital requirement for their operations based on the risk they carry, and the commission will ensure its complied with.

Under the recapitalisation exercise, life insurance firms are required to meet a minimum paid-up capital of N8 billion, up from N2 billion while general insurance companies will increase their paid-up capital to N10 billion, from the earlier N3 billion.

Composite insurance (life and non-life operators) would recapitalise to N18 billion as against the previous N5 billion while reinsurance businesses would have a minimum capital of N20 billion, from N10 billion.

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