NAICOM demands recapitalisation strategies by underwriters

Ahead of the planned recapitalisation of insurance and reinsurance companies in Nigeria, the National Insurance Commission (NAICOM), has given operators up till August 20, to submit their capital raise strategy.

NAICOM, in circular dated, July 23, and titled: “Re: Minimum Paid Up Share Capital Policy for Insurance and Reinsurance Companies,” signed by the Director, Policy and Regulation Directorate, Pius Agboola, said the directive was in furtherance to the previous one.

To enhance the effectiveness and capacity of underwriters to retain risks, the Commission had given firms up till June 30, 2020, to raise their capital to the new minimum prescribed for different business categories, a move that is mostly being resisted by the operators in view of the paucity of funds.

Undeterred, NAICOM, in the latest circular clarified that the recapitalisation plan would include, among others, capital status of the companies as at the last audited financial statements; board resolution on how to comply with the directives; detailed action plan on how the funds for the recapitalisation are to be sourced with timeline and deliverables.

Also, companies intending to seek funds from the capital market are required to submit their plan of action on a file-and-use basis, and companies that intend to merge or acquire another should submit their proposal, after which they must comply with Sections 30 and 31 of the Insurance Act 2003.

The Commission noted that after the submission of the plans, it shall review and provide responses for them on or before September 17, adding that the review may require meeting the board and management of each of the insurance companies on its recapitalisation plan.

The industry regulator said it is engaging other regulatory bodies for possible palliatives, in additional to those that has been considered.

It also maintained that in furtherance to the circular dated May 20, the minimum paid up share capital shall be through any or a combination of the existing paid up share capital; cash payment for new shares issued; retained earnings – capitalisation of distributed profit; payment in kind (other than by way of cash) for new shares issued, like properties.

Others include treasury bills, shares, and bonds, which must be converted to cash not later than three months to the deadline for recapitalisation and share premium. NAICOM added that the items listed above can be achieved through mergers and acquisition.

NAICOM said cash payment for new shares issued shall be deposited in an escrow account with the Central Bank of Nigeria (CBN), adding that deposited funds shall be released not later than 30 days after confirmation and issuance of a new licence.

The Commission posited that the shareholders’ fund as at the last date of recapitalisation for existing insurance/reinsurance companies shall not be less than the required minimum paid-up share capital.

It said payment of statutory deposit shall be in accordance with the Insurance Act 2003, and shall be made not later than 30 days to the deadline for the recapitalisation, stressing that all mergers and acquisition shall be concluded not later than 60 days to the deadline for the recapitalisation.