Small operators plagued by new capital requirements’

The new capital base requirements for the insurance industry, officially launched on August 1, 2018, may have sent a warning signal to operators, especially the small ones and increasing the possibility of a new round of mergers, acquisitions or operational scale down.
Due to take off by January 2019, the policy by the National Insurance Commission (NAICOM), tagged a three-tier recapitalisation exercise, however, is generating huge applause from the big operators that have sustained a healthy solvency level, The Guardian has learnt.
Some experts, with the knowledge of the development, affirmed that the new Tier-Based Minimum Solvency Capital has already put some companies on their “toes”, because it is now more of threat to their existence.
Specifically, the small companies would need to go extra miles to shore up their solvency level and presently, cannot directly register their worries with the regulator, but using the Nigerian Insurers Association (NIA) to advance their cases before NAICOM.
Meanwhile, the new regulation is coming 11 years after the sector’s recapitalisation in 2007, which trailed the banking sector consolidation exercise.
Those interested in the same tier, but operating the life business are mandated to upgrade their capital from N2 billion to N6 billion, while non-life insurers planning to play in this tier are expected to raise their capitalisation from N3 billion to N9 billion.
Composite insurers willing to operate in Tier 2 are expected to increase their capital base to N7.5 billion; non-life operators, N4.5 billion; while life operators under Tier 2 category are expected to increase capitalisation to N3 billion.
However, for insurers willing to play in the lowest tier, which is Tier 3, are expected to maintain the current capital base of the insurance industry.
In this instance, non-life insurance companies in Tier 3 are to maintain N3 billion, life operators are to maintain N2 billion, while composite insurers are to maintain N5 billion capitalisation.
Speaking at a media parley in Lagos, to unveil the initiative, recently, the Commissioner for Insurance, Alhaji Mohammed Kari, said the commission was not withdrawing any operational licence, but to ensure each insurer has adequate capital to absorb the risks it was taking.
Kari, who was represented by the director of supervision, National Insurance Commission (NAICOM), Barineka Thompson, explained that the recapitalisation became desirable as inflation and interest rates had soared in the last 10 years, while insurers still operated with the same capital base since 2007.
According to him, “interest rate has gone from single to double digit, inflation has risen over time and with many macroeconomic and institutional factors on the upward trend, yet the industry still maintained the same capitalisation in the last 10 years.

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