AIICO, Custodian, Zenith, FBN Insurance, Wapic set to meet new capital requirements
Only five insurers will meet the new capital requirements by the National Insurance Commission (NAICOM), the industry regulator, according to analysis by Chapel Hill Denham Limited, a leading investment house.
The five insurers are AIICO Insurance, Custodian and Allied, Zenith General, First Bank Insurance, and Wapic General.
Analysts at Chapel Hill Denham said they used share capital (plus premium) and retained earnings as qualifying capital in their analysis, but they added that if shareholders’ funds were used, 10 insurers (including Prudential Zenith Life, Custodian Life, Nem, Linkage Assurance and AXA Mansard) would have met
the new minimum capital requirements.
“We expect these companies to comply with the regulatory minimum relatively seamlessly via capital injections from significant shareholders or strategic investors,” said analysts at Chapel Hill Denham.
“We believe the insurers that are able to meet the capital requirement well ahead of the deadline will be the winners in the recapitalisation exercise,” said the analysts.
NAICOM jacked up the capital bases of insurers so that they can take on more risk and accelerate contribution to the economy.
The minimum paid-up share capital requirement for life insurance companies is now N8bn ($22.2m) vs. N2bn ($5.6mn) previously; general N10bn ($27.8m) vs. N3bn ($8.3m) previously; composite N18bn ($50m) vs. N5bn ($13.9m) previously, and reinsurance N20bn ($55.4m) vs. N10bn ($27.7m) previously.
The new capital requirement took effect on May 20, 2019 (date the circular was issued) for new application, while existing insurance and reinsurance companies are expected to fully comply by June 30, 2020.
In a July 23 circular, the regulator mandated operators to submit their recapitalisation plan on or before August 20, 2019.
The Insurance Act 2003 stipulates the consequences of not meeting the minimum paid-up capital and actions to be taken by NAICOM. These include (i) cancellation of the registration of any insurer or reinsurer that fails to satisfy the capital provisions as it relates to the category of operations of such insurer or reinsurer, and (ii) publication of a list of insurers and reinsurers that comply with the capital provisions. Such list may be published not more than 30 days after the deadline stipulated by NAICOM, which is 30 days after June 30, 2020 if the date is not shifted for the new capital policy.
Insurers in Africa’s largest economy have begun a race to recapitalise ahead of the NAICOM deadline.
Wapic Insurance plc is seeking funds via capital injection from majority shareholders, but its general business is well capitalised, while life segment needs more money.
“The regulator could withdraw the operating licence of companies that fail to recapitalise,” said Seyi Olusi, chief finance officer at Wapic Insurance.