•  Life, N6bn; businesses, N3bn; oil and gas, N9bn

Ebere Nwoji

The National Insurance Commission (NAICOM) has raised the capital base for firms from N2 billion to N6 billion operating in the insurance sector, with effect from January 1, 2019.

The new recapitalisation exercise is a three-tier recapitalisation system, whereby firms were graded as tier-three, tier-two and tier-one.

The commission disclosed this in Lagos wednesday, at the insurers’ committee meeting.

According to the insurance sector regulator, the new capitalisation system tagged, “Recapitalisation of insurance companies, the tier-based minimum solvency capital,’ would be based on risk-based supervision model.

Releasing the modalities for the new capital base, the NAICOM Director of Supervision, Mr. Thompson Barneka, operators of life insurance business whose current minimum required capital is N2 billion and who want to continue underwriting businesses that fall under tier-1 category, they would have to shore up their capital to N6 billion, effective from January 1, 2019.

Similarly, life underwriters who want to underwrite businesses, which fall under tier-2 will have to shore up their capital from the present level of N2 billion to N3 billion, while those who want to underwrite businesses that fall under tier-three category will retain the existing N2 billion.
On the other hand, for non-life operators whose existing minimum capital is currently N3 billion, operators who want to underwrite businesses that fall within the tier-1 level, which include oil and gas and oil related projects, explorations and production and aviation, will have to shore up their capital from the present level of N3 billion to N9 billion.

For those that will write businesses that fall within tier-2 level, which includes engineering , marine, and bonds credits guarantee and suretyship insurances, they would be expected to shore up their capital base from the present level of N3 billion to N4.5 billion, while those that wish to underwrite businesses that fall within the tier- three level, which include fire, motor, engineering, general accident and agric policies, will remain within the minimum capital base of N3 billion.

However, for composite insurance firms consisting of insurers underwriting both life and non-life businesses, those under tier-one level will have to shore up their capital from the present level of N5 billion to N15 billion, those in tier two level will move up their capital from N5 billion to N7.5 billion,while those on tier-three will remain on N5 billion minimum capital.

The commission said the essence of the risk -based capital classification was to encourage firms to specialise on businesses and risks level they have the capital capacity to underwrite and leave those businesses they do not have the financial capacity to underwrite.
Before now, some insurance firms used to engage in underwriting risks they do not have the capital to shoulder.
This was prevalent among underwriters of oil and gas and aviation businesses.
But NAICOM said effect from January 1, 2019, this will cease to be.

The commission, said in classifying and spelling out the new minimum capital, it was encouraging insurance companies to limit themselves to risks they have the financial muscle to carry and for mergers and acquisitions in the sector.

The last recapitalisation exercise in the industry was carried out in February 2007.

However, NAICOM explained that the policy thrust of its current exercise was to enhance the stability of the financial system, introduce proportionate capital that supports the nature of business conduct of insurers and to specify the capital requirement for each tier level based on risk classification for each tier.

It said there “will be no mandatory injection of fresh capital by insurers, no cancellation of licences of any operator is anticipated but that it will be subject to solvency control level.”

But the commission, however, stressed that the exercise was meant “to open up licencing window to interested investors at higher tier level as well as restructuring of capital resources for improved liquidity and claims settlement in the industry.”
The guidelines for the new capital base would be released next month, while implementation takes effect from January 1, 2019.