Analysts, Operators Differ on Insurance Sector Recapitalisation

The recent directive for a recapitalisation exercise in the insurance sector has continued to attract debate.

The National Insurance Commission (NAICOM) had about a fortnight ago announced the tier-based minimum solvency capital for operators.

But since its announcement, operators and industry analysts has been expressing divergent views.

While some gave kudos to the regulator for coming up with the exercise at this time, others argued that it would be counter productive, suggesting that the commission should create what they described as 10-year three-tier recapitalisation roadmap.

Commenting on the initiative, the chief executives of the Financial Derivatives Company Limited, Mr Bismarck, Rewane, said the exercise was a step in the right direction.

According to him, the action by NAICOM is normal and would lead to quality consolidation.

“It is a wake-up call for insurance operators it will make them more productive, it will make operators strong, be able to attract quality manpower, it will weed the weak ones and ensure that strong ones remain in business,” Rewane added.

However, the Managing Director, Lancelot Ventures Limited, Mr Adebayo Adeleke, argued that the exercise would be counter productive and suggested that it should will be implemented over 10 years.

“It is considered by a lot of people that NAICOM was sleeping when there was continuous evolution in the banking industry between 2005 and 2008.

“The recapitalisation made banks to adjust. So, there is a need for the regulator to think through the sector regulation especially the three-tier idea may be counter productive because as it is, people will begin to segregate and the benefits and rights will be taken away from insurance companies that are seen to be frustrated and unproductive,” he said.

Suggesting the way forward he said, “however, I am of the opinion that there is need to have a three-tier recapitalisation roadmap spanning the period of 10 years.

“In the first 18 months, we can increase the capital base for insurance companies who are in the life business doing to N4 billion and those in general doing to N5 billion, those who are in the composite doing N9 billion, then the next three years after the first exercise is done, we should have those doing life N8 billion; general N10 billion and composite for N18 billion.

“Then five years after, life should be doing N20 billion, general N30 billion, composite N50 billion and if we have a 10-year program the people managing the business will have something to work towards.”

A top management staff of one of the insurance firms said though the exercise had been orchestrated by the regulation before the announcement, recapitalisation was not the most important thing the industry was expecting from the regulator at this time.

According to the insurer who pleaded to remain anonymous, if NAICOM wants every operator to survive, there are other issues affecting the industry that the regulator ought to address.

He said a critical look at the industry would reveal that issues such as price wars, cutting of rates and unhealthy competition were taking a toll on firms’ performance. To the extent that some charge common policy like motor third party insurance as low as N1000 instead of the N5000 official rate.