Relief has finally come the way of insurance underwriters in the country as the sector regulator, National Insurance Commission (NAICOM) has cancelled the Tier-Based Minimum Solvency Capital (TBMSC) model of recapitalisation which seeks to graduate operators according to their financial capabilities.
The recapitalisation which implementation was stalled by a court order in September, was finally dumped into the trash bins by its initiator, who had earlier insisted on its execution.
The commission in a circular referenced NAICOM/DPR/CIR/18/2018, and dated November 23 2018 to all Insurance companies, withdrew the August 27 circular that intimated them of the recapitalisation policy and also ordered its eventual cancellation.
The circular titled “Withdrawal Of Circular On Tier Based Solvency Capital Policy For Insurance Companies In Nigeria” and signed on behalf of the Commissioner for Insurance, by the Director, Policy and Regulation, Agboola T. Pius, read: “Pursuant to the powers conferred by the enabling laws, the commission hereby wothdraws and cancels the circular dated August 27, 2018 with reference Number NAICOM/DAPCIR/14/2018 and titled, ‘Tier Based Solvency Capital Policy For Insurance Companies In Nigeria”. This withdrawal and cancellation takes immediate effect”.
The TBMSC structure graduates operators according to their financial capabilities and according to NAICOM, is a complimentary measure to the existing Risk-Based Supervision (RBS) programme in the insurance market.
With this development, many jobs that would have been lost owing to the closure of some departments in the second and third tiers companies if the policy was implemented, have now been saved.
Insurance underwriters are also free to underwrite all classes of business and will have time to buoy up their capitalisation without undue pressure
The commission while announcing the framework in July had fixed its implementation for January 1, 2019 but later reversed itself and set it for October 2018.
In October however, the commission suspended the policy citing a Federal High Court injunction, which halted the implementation of the framework and asked insurance underwriters to maintain the status quo
In a circular titled “ Update On the Implementation Of the Tier-Based Minimum Solvency Capital Policy For Insurance Companies In Nigeria” and distributed to all Insurance institutions in the country, the commission stated that it complied with the court injunction which suspended action on the TBMSC which implementation was to start October 1, 2018.
The circular referenced NAICOM/A&P/TBMSC/CIR/2018/029 and signed by L.M Akah, Director, Authorisation and Policy, NAICOM on 18 October 2018 read : In compliance with the extant rules and the injunction issued by the Federal High Court regarding the Tier-Based Minimum Solvency Capital framework which was to take effect from October 1, 2018, the Commission wishes to clarify that the status quo will be maintained and insurers are to continue to operate on the subsisting regulatory framework prior to the circular”.
“Appropriate regulatory directive would be advised upon conclusion of the suit” noted Akah In the circular.
The announcement of the framework in July has created tension in the industry with fear of job loss with fear that weak companies will become easy prey for acquisition.
There were complaints against effective date of the framework which the operators noted was too close and could adversely affect their ability to recapitalise.
The former Finance minister, Kemi Adeosun was said to have ordered the suspension of the framework but her resignation from office was said to have prevented the implementation of the directive.
Under the cancelled recapitalization model, the market is graduated into three cadres and the players in the top bracket regarded as Tier-One are expected to shore up their capitalization to N15 billion representing 200 percent increase if they are to operate the composite form of business.
Such insurers will be allowed to handle individual life, health insurance, miscellaneous insurance and annuity for life and Non-Life comprising fire. Motor, general accident, Engineering, agriculture, miscellaneous insurance, Marine, Bonds Credit Guarantees & Suretyship, Oil and Gas (oil related projects, exploration and production) and Aviation.
Life insurance in this cadre has to jerk up its capitalisation from the current N2 to N6 billion and the Non-Life in this category will move from the current N3 billion to N9 billion.
Barineka Thompson, a Director of the Commission hinted in July that composite companies in Tier 2 cadre are to look for N7.5 billion to operate within this bracket.
Such companies will under its Life branch underwrite individual life, health insurance, miscellaneous insurance and Group Life insurance.
The Non-Life insurance under the Tier 2 covers Fire, motor, general accident, Engineering, agriculture and miscellaneous, Marine, Bonds Credit Guarantee and Suretyship.
A life company that choose to play in the Tier 2 cadre is to grow its capitalisation to N3 billion while a Non-Life Underwriter that want to play in this cadre is to look for N4.5 billion.
The last group is the Tier 3 which currently is the capitalization in the industry.
Companies that lack the financial capability to grow their capitalization to the either of Tier 1 or Tier 2 are expected to continue to play in this cadre
The commission noted that the failure of some insurers to honour contractual obligations necessitated the framework.
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