New minimum capital brings Nigeria above some global peers
The Nigerian Insurance industry will be in a solid shape as the new capital base for composite insurers surpasses the minimum capital of insurers some countries in Africa, Emerging market, and Frontier Market, according to a new report by Chapel Hill Denham Limited.
The report noted that the new $50 million capital base for Nigerian operators, which is higher than $14 million currently held, is second to China’s $58 million, but eclipses Egypt, ($27 million); India, ($14 million); Ghana, ($12 million); Indonesia, ($11 million); Kenyan, ($10 million); Brazil, ($4 million); Turkey, and ($2.20 million).
“We believe the materially enhanced underwriting capacity of Nigerian insurers’ positions these companies for present and emerging opportunities for premium income growth in the industry,” said Ronke Akinsola, equity research analyst with Chapel Hill Denham.
National Insurance Commission (NAICOM) has jerked up the capital bases of insurer so that they can take on more risk and accelerate contribution to the economy.
The new capital requirement took effect on 20 May 2019 with existing insurance and reinsurance companies expected to fully comply by 30 June 2020.
In a July 23 circular, the regulator mandated operators to submit their recapitalisation plan on or before 20 August 2019.
The industry consolidation of 2007 resulted in the reduction of insurance companies to 49 from 103 and reinsurers to 2 from 5, but the industry lags other sub-saharan Africa countries in penetration rate.
Nigeria, Africa’s largest economy, has an industry premium of 900 million, this compares with India ($98 billion); Brazil, ($83.30 billion); South Africa, ($47.80 billion); and Indonesia ($24 billion).
Insurers are mulling tapping the capital market to raise funds to meet regulator deadline while others have approached investors for capital.
“My company is trying to restructure from within and we are tapping the capital market to raise funds,” said Ganiu Safiu, Actuarial Scientist at Cornerstone Insurance Plx “We have an investor that trying to bring in some money”
Safiu said NAICOM will not allow firms that are unable to meet the set target to sink, and he sees the regulator take them over and sell them off.
However, Oluseyi Olusi, Chief Finance Controller of Wapic Insurance said the regulator could withdraw the operating licence of companies that fail to recapitalize.
He adds that his company’s General Business is well capitalized, but the Life segment needs more money and that they have approached shareholders to raise funds.
Foreign investors from Europe, America, and South Africa are directing their reserve funds into Nigerian insurance market to take advantage of new capital regime and indigenous firms’ inability to tap the capital market for funds.
The introduction of the risk base risk supervision model few years ago saw foreign insurers like AXA, Sanlam, AFIG Funds, and Allianz, among others; acquire stakes in insurance firms in Nigeria.
Analysts at Chapel Hill say they see the recapitalization as a step to strengthening regulations in the insurance industry, but they added that ultimate demand for key products is key to industry growth.
The investment house highlighted the regulations, technology investment, and infrastructure investment as possible drivers of insurance demand in Nigeria and they added that tight regulatory framework such as risk-based capital model can also encourage trust in insurance companies as the risk of liquidation is minimised.“we also think public education will be key in order to enlighten people on the benefits of owning insurance products, which should help break the cultural barriers to the demand for insurance in Nigeria,” said analysts at Chapel Hill Denham