Guidelines On Govt Assets Ready As NAICOM Plans N18bn Capitalisation.
Three months after the Finance minister, Zainab Ahmed halted a new capitalisation for the insurance sector, the industry regulator, National Insurance Commission (NAICOM) is ready to announce a new policy that may compel composite firms to shore up their capital base to N18 billion from the current N5 billion.
Ahmed halted the capital increase for insurance companies in December last year owing to lack of sufficient information to enable her authorise a new capitalisation for the underwriting segment of the sector.
Top ministry officials who confided in InsideBusiness Online over the weekend noted that the commission had since re-submitted the proposal on the new policy to the minister for approval.
Under the new capital regime to be announced, Life insurance companies may be required to have N8 billion, an increase of N6 billion over the current capital base while Non-Life companies may be asked to go up to N10 billion from the N3 billion that currently obtains.
The new proposition for composite business is N3 billion higher than the recommendation of the recently cancelled Tier-Based Minimum Solvency Capital (TBMSC) which mandated players in that category to look for N15 billion.
The new capitalisation which ought to have been announced last Friday but delayed owing to non-approval yet by the minister, is being reintroduced, four months after the Insurance regulator withdrew and cancelled the Tier-Based model of capitalisation that pitted it against a shareholders’ group, the Independent Shareholders Association Of Nigeria (ISAN).
“Up till the evening of last Thursday, the Finance minister has not approved the commission’s request on the new capitalisation” according to the official of the ministry who is familiar with the issue.
Read also: Finance Minister Stops N18bn Recapitalisation For Insurance Underwriters.
Efforts to get official confirmation from the finance ministry were not successful as Paul Abechi, the Special Assistant to the minister on Media denied knowledge of it.
“I will confirm that to you when i get to the office on Monday’ he said.
Equally, Rasak Salami, the spokesperson for the commission also stated that he was not aware of such moves by the insurance regulator.
“I will confirm it from the Insurance Commissioner on Monday”, he also said.
It would be recalled that the commission in November last year withdrew and cancelled the Tier-Based capitalisation model it introduced last July following a court action instituted by ISAN led by its president, Sunny Nwosu.
Read also :TBMSC: Shareholders Group To Continue Case Against NAICOM
The tier-based model categorised the underwriters and outlined the risks under each of the tiers. Players in the aTier-1, the highest category were to provide N15 billion to underwrite all classes of risks.
Findings at both NAICOM and the ministry show that the new capitalisation will be out same time with the guidelines on the insurance of government assets that the commission had contemplated for a long time.
The commission had in 2015 written federal ministries and agencies, requesting for their assets profile in its efforts at determining the risks as well as appropriate pricing. The responses from the agencies are expected to be part of the inputs for the guidelines to underwrite government assets.
Feelers from the committee on the guidelines, comprising representatives of the commission, the finance ministry and the Office of the Head of the Civil Service, noted that the capitalisation of each company will determine the level of participation on underwriting of government risks.
Arguments For New Capitalisation
Sources at the Commission who gave an insights to the new policy which is being opposed by shareholders and market operators who have argued against the timing noted that the new regime of capitalisation is to address the solvency issues in the industry.
“The industry understood our efforts it but the small players that are struggling are opposing this because they want to keep handling all classes of risks despite their financial weakness and insolvency”.
“There are several complaints of claims’ defaults against these struggling companies which the laws frown at. The laws say if we have five different complaints from customers of an insurance company over delayed payment of claims that have exceeded 90 days after BV had been issued. That, according to the law is a ground for cancellation of the company’s license”.
While he said the regulator would not go that way, he noted that the current efforts of the commission are to try and see how everybody can still be accommodated within the ambit of the law.
He admitted that small companies are allowed to co-exist with the bigger ones but argued that the small firms have limit to the classes of business they are allowed to underwrite.
“In other climes, small players do not underwrite big and high risks unlike Nigeria where those that are struggling to pay salaries would want to play in the big league and be competing for oil and gas risks that they have no capacity for”.
It was further argued that because of the peculiar nature of ways of doing business In Nigeria, the smaller companies with weak capacities get the insurance accounts of big parastatals and that of the oil companies while the big ones with both the technical and financial competencies are always behind.
“Every insurance company in the country has a link to the Presidency and several ministers. The companies then use their political influence to get the accounts/jobs that they don’t have capacity for”.
“So when claims come, the influence that got them the accounts would have disappeared after collecting shares of the premium paid and will not bother whether the claims are paid”.
The essence of an insurance company is to compensate in the event of crisis, the policyholders from whom premiums were collected .
“We have seen insurance companies taking clients to court over claims payment and their lawyers will keep asking for adjournment to frustrate the clients till he abandons the case”.
This, according to him is one of the tactics of weaker companies for repudiating claims.
Arguments Against Increase In Capitalisation
At the current N5 billion capitalisation for a composite operator, Nigerian insurance capital base ranks the highest in Africa and Europe, thus raising question on the quest for another capital increase.
A managing director who prefers anonymity admitted the inherent problems in the industry which solutions he noted, are not increase In capitalisation.
He argued that the companies are currently under trading with their existing capital following the situation in the economy that has led many to close shops.
“If you look at the account of companies that have N3bn capitalisation, they are not even writing business of N2 billion. This simply means that they are under-trading and under-utilising the capital”.
“We all know that the shareholders of those companies are not getting significant dividends. Will you now call on those shareholders to go and increase by 400%, the capital of the business on which they are not reaping dividends ?”.
“The fact that we have higher capital base does not mean that we will have more business to do. We will only insure what is available. So it doesn’t really make sense”.
He disclosed that some directors of the commission who had interacted with the operators and with their experience in the industry knew that there is no justification for a new capital but are quiet so as not to be in opposition with their employer.
“They knew that the current capital is not effectively being used”.
He faulted the excuse by the commission of certain insolvent companies arguing that NAICOM cannot ask for increase in capitalization for the whole of the industry because few companies cannot pay claims.
“It is always expected that some companies will be deficient and one cannot because of that punish the whole of the industry. What is expected of the commission in this scenario is to suspend the management and board of the companies, suspend their licenses and compel those found wanting to increase capital base to continue in business”.
He disagreed with the commission on the weak claims obligation of the industry, daring the commission to come out publicly.
“The commission is just on flimsy excuse. If it says that some are not paying claims, has it ever publicly announced and shamed a company for failing on claims obligation”, he queried.
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