The fast-approaching deadline for insurers to meet new capital requirement rules in Nigeria is set to trigger a wave of consolidation.
Axa, Allianz and Prudential are among foreign insurers that may seek to expand their presence in Nigeria, said Aderonke Akinsola, an analyst at Chapel Hill Denham in Lagos.
The Nigerian National Insurance Commission (NAICOM) on July 23 gave more details on the minimum capital requirements for insurers and reinsurers announced in May.
The new NAICOM circular says that all mergers and acquisitions will have to be completed at least 60 days prior to the deadline of June 30, 2020 to be counted.
Refinancing plans have to be submitted to NAICOM by August 20, 2019.
That means the window of opportunity for consolidation in the sector is narrowing.
Chapel Hill Denham analysed financial data on 41 out of 57 insurance and reinsurance companies in Nigeria and found that only five meet the new requirement: FBN Insurance, Custodian & Allied, Zenith General, Wapic General and Leadway.
Some composite insurers, covering both life and non-life, are likely to have to choose one or the other line to stay in business, the research says.
Big players like Axa Mansard and Prudential Zenith Life will comfortably be able to comply through capital injections from shareholders, the research says.
Others may be obliged to seek to raise equity capital – but those with shortfalls of more than N5b ($13.8mn) will find it hard to do so in the current weak market environment. These are the most likely to seek a merger, opening a door for foreign acquirers.
The composite insurers with the biggest shortfalls, according to the report’s figures, include Goldlink, Standard Alliance, Niger Insurance and Great Nigeria.
In life insurance, African Alliance and Capital Express Insurance have shortfalls of over N5 billion, as do Staco Insurance, International Energy, SUNU Assurance and Guinea Insurance in non-life.
The new rules exclude micro-insurers and takaful operators.
The African Report notes that Nigeria joins African countries such as Kenya, Egypt and Ghana in revising insurance financing requirements.
This is positive for increasing insurance penetration argues Chapel Hill Denham, with tighter regulation having the potential to raise public confidence.
Chapel Hill Denham predicts a reduction in the number of insurers in Nigeria to at most 20 from 57 currently.
