Again, NAICOM shifts insurance recapitalisation deadline

The National Insurance Commission (NAICOM) has again extended the deadline set for insurance firms to boost their capital base from June 2020 to December 2020. The recapitalisation goal post was shifted after several criticisms of the timeframe and the impact the policy would have on the numbers of available underwriting firms.

NAICOM, in a statement, seen by Nairametrics, explained that said insurance companies now have till the end of 2020 to meet the deadline

About the recap plan: The recapitalisation plan compels the companies to raise new capital in order to meet up with the new share capital requirement issued by NAICOM.

The new capital structure for Life, Non-Life and Composite insurance companies, including reinsurance companies, were increased from N2 billion, N3 billion, N5 billion and N10 billion to N8 billion, N10 billion, N18 billion and N20 billion respectively.

Why NAICOM extended deadline: NAICOM took the decision after its engagement with industry stakeholders.

The commission said“The extension of the deadline to December 31, 2020, was considered after the regulator reviewed the recapitalisation plan by operators and various levels of compliance observed.

Did NAICOM bow to pressure? The recapitalisation plan has been subjected to scrutiny by the insurance companies. While NAICOM said the recapitalisation would strengthen the insurance sector and aid economic development, the market worried that it could trim down the number of players affecting the competitive nature of the market. The recapitalisation plan is expected to cause the exit of some underwriting firms and lead to the merger of other companies.

It also directed insurance companies to deposit fresh funds raised for recapitalisation into Escrow Accounts with the Central Bank of Nigeria (CBN).
As part of the measures to ease the recapitalisation exercise, NAICOM said, some of the relevant agencies have set up Help Desk to fast track the processing of application for ‘No Objection’ and for approvals, adding that, engagements with these agencies on other palliatives are ongoing.

Details: NAICOM had raised the minimum paid-up share capital of a Life insurance company from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion. Re-insurance companies were directed to raise their capital base from N10 billion to N20 billion.

Findings revealed that insurance stakeholders mounted pressure on the NAICOM to extend the deadline, especially, for companies going into mergers and acquisitions as such a business combination takes time to reach a compromise.

From indication, the extension is basically being considered because of those engaging in mergers and acquisitions to give them enough time to discuss with their investors and relevant parties while getting the needed regulatory approvals before sealing such business combination.

As it was, eight insurers that wanted to toll this path are still at the preliminary stage of discussion with the parties involved, while experiences from other climes where mergers and acquisition had occurred shows that the remaining six months is not enough to seal such business deal because of, not only the bureaucracy involved but also the due diligence that must be carried out to ascertain the level of liabilities to be acquired.

Nairametrics had previously reported that Cornerstone Insurance said the best method to meet the recapitalisation requirement was to merge or consolidate rather than raise funds while Mutual Benefits Assurance said the policy would have a negative impact on the insurance market, stating that NAICOM should either scrap the plan or extend the deadline.

Tale of similar extensions:

On July 25th, 2018, NAICOM rose from its bi-monthly insurers’ committee meeting and announced a new capital base for operators in the sector.
The new capital was then hinged on the magnitude of risks involved in the business each firm wants to underwrite as the commission in the capitalisation system, which was risk-based, in place of the compliance base capital system.

Initially, the regulator had given January 1, 2019, deadline for implementation of the new capital system but later changed the deadline to October 1, 2018.
The change in the implementation date had marked the beginning of trouble as some chief executives who were working towards the January 2019 deadline were thrown off balance. It was later shifted to June 2019 before the regulator shifted again to December 2020.

Moreso, the use of their financial report for 2017 in measuring each firm’s performance did not go down well with the operators.
The industry employees were gripped by fear of losing their jobs to the extent that even the management staff of firms that fall within tier-three levels were reportedly making a secret move to accept lower positions in bigger companies that measured up to tier two and tier one.

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