Again, NAICOM Suspends Insurance Recapitalisation Exercise

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In a similar fashion that consigned the tier-based recapitalisation of 2018 to the waste-bins, the National Insurance Commission (NAICOM) has suspended the ongoing Insurance industry recapitalisation exercise, putting every effort, time and money spent on its planning in the past two years to waste.

 

The latest action although with some underlying issues follows the court order that compels the regulatory body to do so. The court order came on the heel of an earlier motion by the House of Representatives that gave similar order.

 

With these two lightning strikes from the Court and the federal lawmakers, a major legacy that would have outlined the era of Mohammed Kari, the former Commissioner of Insurance, has been quietly erased.

 

Today, 31st of December, 2020, would have been the deadline for the first phase of the exercise that would have seen underwriters raise 50 per cent of the new capital while the remaining 50 per cent would be expected by September, 2021, if the regulatory body had not suspended the exercise

 

Just like the litigation that snuffed life out of the previous tier-based recapitalisation, some aggrieved insurance stakeholders had filed suits mandating the court to stop NAICOM from proceeding with the ongoing recapitalisation exercise of the insurance industry.

 

Confirming the development yesterday, NAICOM’s spokesperson, Rasaaq Salami, said: “You are aware that the issue is in court and there is an interim order of the Court. NAICOM, being a responsible and law-abiding organisation, will respect the order of the court.”

 

Salami’s statement would have doused the worries on the exercise in the underwriting segment of the industry, which has prompted a letter from the Nigerian Insurers Association (NIA) to the sector regulator, seeking clear directives on the position of the exercise which has now turned a still-birth.

 

NIA in its letter entitled: Segmentation of Minimum Paid Up Share Capital of Insurance Companies in Nigeria: Appeal For Waiver of December 2020 Milestone, and signed by its Director-General NIA, Yetunde Ilori, noted the NAICOM’s silence on its request for a waiver on the December 2020 deadline for the first phase of the recapitalisation exercise.

 

It noted that the continued silence by the commission on its position is of serious concern to operators. “This is underscored by a fast-approaching deadline and everybody is being kept in a suspense, which is not helping the market at the moment,” it said.

 

NIA implored NAICOM to kindly respond to its letter and provide a position on other matters to properly guide the operators and all other stakeholders, thereby putting an end to unintended speculations and uncertainties surrounding the ongoing recapitalisation exercise.

 

Earlier in the month, however, the House of Representatives had equally ordered the discontinuation of the recapitalisation exercise and had earlier in the week written a letter to NAICOM in this regard.

 

Two shareholders groups have earlier institute a court case against the regulator, mandating NAICOM to stop the process.

 

A Federal High Court, sitting in the Lagos Division, had earlier, temporarily stopped NAICOM from taking any further steps in effecting its deadline date for insurance and reinsurance companies to recapitalise their financial base.

 

Justice C. J. Aneke of the court made the order while delivering a ruling in an exparte application brought before him by the Incorporated Trustees of the Pragmatic Shareholders’ Association of Nigeria.

 

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

 

Composite insurance (life and Non-life operators) were asked to recapitalise to the tune of N18 billion as against the previous amount of N5 billion, while reinsurance businesses are now required to have a minimum capital of N20 billion from N10 billion that obtained in the past.

 

It would be recalled that in 2018, the regulatory body had to stop the tier-based recapitalisation exercise of the insurance Industry.

 

The suspension then, owed to the court case instituted by insurance shareholders under the auspices of the Insurance Shareholders Association of Nigeria (ISAN), stopping NAICOM from commencing the implementation of the Tier-Based Minimum Solvency Capital (TBMSC) model in the insurance sector of the nation’s economy.

 

Although many would have ascribed the suspension of the recapitalisation exercise to the court order and the motion from the federal lawmakers, findings show that the main reason is the incoming insurance industry consolidated bill which already has a provision on the Risk-based Capital adequacy which a 2013 IMF Report prescribed as being most suitable for the Nigerian Insurance market.

 

This, it was leant that was embraced by the NIA according to the association chairman, Ganiyu Musa who noted that in adopting Risk-based Capital adequacy template, the Association took cognizance of the need to consider insurance risk, market risk, credit risk, and operational risk as well as the need to apply such capital charges on assets and liabilities (all capital resources inclusive).

 

The sector regulator was also said to have duly acknowledged the IMF report and admitted as being the right capital framework for the market as it seeks to limit the capital required by operators to the level of risks they can carry.

 

The IMF peer review report on the Nigerian Insurance market observed that it was over-capitalized relative to other developing countries and recommended that the regulator should review the excessive capital requirement when adopting a risk-based capital framework.

 

The underwriting segment of the industry especially, InsideBusiness‘ findings show, looks forward to the passage of the bill which is expected to lay to rest, the contentious issue of the definition of capital which has been a major point of the Association’s engagements with the Commission since the era of NIA former director-general, late Funmi Adeyemi and that of the former CFI, late Oladipo Bailey when recapitalisation was introduced in 1997.

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