Why shareholders oppose new industry’s recapitalisation

Shareholders in the nation’s insurance industry have kicked against the new move by the National Insurance Commission (NAICOM) to recapitalise the industry, after the commission issued another circular to all underwriting companies, mandating them to raise their capital base, following the failure of earlier attempt.

The Chairman Emeritus, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, over the weekend, in Lagos, condemned the exercise, as announced by the regulator.He said this will only further heighten the tension in the insurance sector, as shareholders are skeptical of investing their money in insurance companies under the current regulatory atmosphere.

He noted that the commission is only making the business operating environment very difficult for insurers, adding that there is no where in the world where recapitalisation exercise is done under one year, as planned by NAICOM. With the previous investment of retail shareholders in insurance companies across the country not yielding good returns, he said it would be very difficult for shareholders to further reinvest in the Industry.

Nwosu charged insurance operators to rise up, as a unit, to oppose the move, noting that most underwriting companies are not in a good financial position to pay dividend, and now, the regulator wants them to recapitalise.The minimum capital required to scale through this new recapitalisation exercise, is far higher and that it will take years to convince investors to invest in those companies.

“It is suspicious to increase capital of insurance companies like NAICOM did and insurance operators must rise up to it because it affects their respective companies. Any where in the world, 18 months is the most recognised timeframe for recapitalisation exercise,” he said.

However, Managing Director/Chief Executive Officer of Consolidated Hallmark Insurance Plc, Eddie Efekoha, believes the regulator came up with the exercise because it has the interest of the insurance industry at heart.He stated that operators are already engaging the regulatory body to find a common ground that will benefit all relevant stakeholders in industry.

“We cannot fight the regulator, but we will engage them to see things from our own point of view. I believe they have the interest of the industry at heart. It is a new development and discussion will continue to reach a common ground,” he said.Industry’s observers believe stronger underwriters will emerge after the recapitalisation exercise, increasing the capacity of the insurers to absorb large risks, thereby, avoiding premium flight in which foreign insurers have dominated, especially in the big-ticket risks because of their huge capital.

Moreover, they expect the recapitalised insurance firms to have enough financial buffer to pay genuine claims when they arise, while giving good returns on investment to their respective shareholders.In the end, market observers believe the premium income of the industry will rise sporadically, generates more revenue to the government as well as enhance economic growth and development.

About 12 years after the last recapitalisation exercise in insurance industry, NAICOM announced on Monday that Insurance companies with composite license will now need to upgrade their capital base from N5 billion to N18 billion to continue to underwrite life and non-life insurance businesses in the country.

The new capitalisation, which translates to about 350 per cent increase from the previous capital base, kickstarts a fresh recapitalisation exercise in insurance sector of the nation’s economy.In a circular released and signed by the Director, Policy and Regulation Directorate of the National Insurance Commission (NAICOM), Pius Agboola, Life insurance firms were required to increase their minimum capital requirement from N2 billion to N8 billion, amounting to 400 per cent increase in their capitalisation.

Similarly, NAICOM mandates General insurance companies to raise their capital base to N10 billion from N3 billion to continue to exist in insurance industry, even as Reinsurance Firms will now need N20 billion capital base to operate Reinsurance business in the country, unlike N10billion they were operating with, prior to now.

To this end, existing insurance companies now have till June 30, 2020 to recapitalise, while a new insurance firm will need to meet up the new capitalisation before it is issued a license to transact insurance business in the country.The commission cited astronomical increase in value of insured assets, consequent exposure to higher level of insured liabilities and operating cost of insurers, among others, as factors that necessitated the need to recapitalise the insurance industry.