Insurance industry operators say they are ready to conclude the ongoing recapitalisation exercise in the industry with clearer definition now of what constitutes capital requirement for insurance operations.
This is following a provision in Finance Act 2021 that defines what constitutes capital requirement for insurance operations, as against what operators described as an obnoxious provision in the 2003 Insurance Act.
Session 33 of Finance Act 2021, which amended section 9 (102) of the Insurance Act 2003, substituted ‘paid-up share capital’ with ‘capital requirement’.
According to the Finance Act, what constitute capital requirements for existing companies are: the excess of admissible assets over liabilities, less the amount of own shares held by the company; subordinate liabilities subject to approval by the commission; and any other financial instrument as prescribed by the commission.
Admissible assets, according to the Act, are defined as share capital, share premium, retained earnings, contingency reserves, and any other admissible assets subject to the approval of the commission.
While in the case of a new company, capital requirements include government bonds and treasury bills, cash and bank balance, as well as cash and cash equivalents.
Ganiyu Musa, immediate past chairman of the Nigerian Insurers Association (NIA), said insurance underwriters in Nigeria were not opposed to recapitalisation, but could not reconcile what constituted the capital as required by the regulator at that time.
“There is no place in the world where only paid-up share capital is recognised as an element of capital. For us in the industry, we were not against recapitalisation, but we were against what constituted the capital in line with global standard,” he said.
Musa, who disclosed this while giving account of his stewardship as the outgoing chairman of the NIA, said: “We are delighted to report that with the President’s assent to the Finance Act 2021, we now have a more acceptable definition of capital. Prior to this time, the definition of capital in Insurance Act 2003 was defective and highly restrictive.”
He appreciated the minister of finance, budget and national planning, commissioner for insurance, KPMG and members of the trade body for their support in seeing this process through. “We are optimistic that this major milestone achievement has removed the major encumbrance on the recapitalisation exercise.”
