3 -Tier Based Recapitalization In The Insurance Industry To Take Off In January 2019

Yemisi Izuora 

The National Insurance Commission (NAICOM) has introduced a 3 -tier based recapitalization for the insurance industry to create enabling soundness and profitability of insurers through optimal capitalization and support the stability of the financial system.

The Commissioner for Insurance, Alhaji Mohammed Kari, while speaking at the unveiling of this new innovation to the media in Lagos yesterday said that there will be specifies capital requirement for each Tier Levels, based on Risk classification for each Tiers,and there will be no mandatory injection of fresh capital fund by insurers.

Speaking further, the Commissioner who was represented by the Director, Supervision, of the Commission, Mr, Barineka Thompson, said that there will be  no cancellation of licence of any operator but subject to solvency control levels, the initiative according to him will open up licencing window to interested investors at higher Tier Level bring about restructuring of capital resources for improved liquidity and claims settlement.

Explaining further Kari said that composite insurance companies who are now interested to play in the Tier 1 category are expected to increase their capitalisation from N5 billion to N15 billion, while those interested in the same tier but operating life business are mandated to upgrade their capital base from N2 billion to N6 billion, even as non-life insurers planning to play in this Tier are expected to improve capitalisation from N3 billion to N9 billion.

While composite insurers willing to operate in Tier 2 are expected to increase their capitalization to N7.5 billion, non-life operators are mandated to increase their capital base to  N4.5 billion, while life operators under Tier 2 category are expected to increase capitalisation to 3 billion. 

However, for insurers willing to play in the lowest tier, which is Tier 3, they are expected to maintain the current capital base of the Insurance industry.  To this end, Non Life insurance firms in Tier 3 to maintain N3 billion; Life Insurance operators, N2 billion and Composite insurers are to maintain N5 billion capitalization. 

Kari further said that the recapitalisation became desirable as inflation and interest rates have increased in the last 10 years, while insurers were still operations with the same capitalization of 2007, this initiative is to ensure a company has adequate capital to absorb the risks its taking.

” Interest rate has gone from single to double digit, interest rate has increased over time and with many macroeconomic and institutional factors on the upward trends, while the industry still maintain the same capitalisation in the last 10 years. So, it is desirable for operators to now chose which tier they wants to operate in. Some companies are finding it difficult to fulfill their obligations to their policyholders and shareholders because they are carrying risks  above their limits,” he stressed.

Stating that this initiative will enhance soundness and profitability of insurers through optimal capitalization, he added that, the introduction of proportionate capital that supports the nature, scale and complexity of the business conducted by insurers. 

” In this instance, there is no cancellation of license, but operators will be subjected to solvency control levels and no mandatory injection of fresh capital by insurers, ” he pointed out. 

The difference between the three tiers, according to him, is in the nature of businesses they would be allowed to underwrite, pointing out that the guideline on this would be issued on 3rd of August, 2018.

To this end, NAICOM has slated August 6-10, 2018, for awareness session with board members and key management staff of insurance companies.

The regulator also plan to release the transition guideline by August 3, 2018, issuance of notification letter on assessed capital level will be from August 13 to 17, 2018 and submission of board’s decision by operators to NAICOM will be not later than September 14, 2018.

Speaking earlier, Deputy Commissioner for Insurance, Mr. Sunday Thomas said, the recapitalization scheme is aimed at developing and applying appropriate tools that consider the nature, scale and complexity of insurers, as well as non-core activities of insurance groups, to limit significant systemic risk and thereby achieve soundness of insurance companies and contribute to the achievement of stability of the financial


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