Analysts, Operators Differ on Insurance Sector Recapitalisation


    By Ebere Nwoji

    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.

    He accused NAICOM of not caring to know why only very few firms were dominating the industry, while a good number of them were struggling to remain as going concerns.

    He said for a growing economy like Nigeria, regulators should not use only the very few that are afloat in business as yard stick for measuring the industry ‘s performance, but should find a way of ensuring the survival of a greater number.

    Asked if he did not think that it was for this particular reason  that the regulator, this time classified the recapitalisation into three tiers of tier one, tier two and tier three with tier one operators having to provide the highest capital base, he queried, “if you have business to insure now, won’t you regard those in tier three as small or weak  operators and won’t you doubt their ability to pay claims and decide to take your business to those in tier two or  one  where you have higher confidence?”

    NAICOM had announced an increase in the capital base of insurance firms saying it will take effect from January 1, 2019.

    Meanwhile, the regulator has since the announcement of the new capital regime been trying to make the industry accept and adjust to the policy.

    At the weekend, the commission organised a meeting with directors of insurance firms on the new capital regime.

    FG Urged to Promote Establishment of Industrial Clusters

    Obinna Chima

    The federal government has been advised to promote the establishment of industrial clusters across the economy for shared infrastructure, idea incubation, innovation, start-ups and overall industrial development.

    This formed part of the recommendations in a study on ‘Industrial Policy and State of Industrialisation in Nigeria,” that was sponsored by the Friedrich Ebert Stiftung (FES).

    The study was carried out by Dr. Omo Aregbeyin, of the Department of Economics, University of Ibadan, Oyo State.

    According to the report, making success of the attempt towards economic development and industrialisation agenda of the country required a renewed, pragmatic and disciplined approach.

    Therefore, to achieve this, it urged governments at all levels to create a stable macro-economic framework/environment; direct the economy along the line stipulated in section 2(a) of the 1999 constitution as amended by returning the country to the path of conscious planning.

    Furthermore, the report stressed the need for necessary legal initiatives for the amendment of the Fiscal Responsibility Act (2007) to make medium term development plan (MTDP) replace the medium term expenditure framework (MTEF).

    According to him, this initiative would insulate present and future development plans and policies from changes in political leadership at all levels as well as eliminate the prevalence of abandoned projects.

    In addition, the report recommended the establishment of the contemplated Nigerian Trade and Competition Commission (NTCC) and the Intellectual Property Right Enforcement Commission (IPREC) as well as promote public-private interface to prevent the manipulation and undermining of the economic development/industrialisation agenda.

    “Public-private interface will help ensure that henceforth government/state interventions of whatever modes are the products of the consensus reached through an inclusive process of intensive formal and informal consultations, discussions and interactions among the socioeconomic groups/interests and/or stakeholders’ in an atmosphere of mutual trust, respect and sincerity of purpose. By this, interests and institutions will be aligned and industry will get promoted.

    “Strategic and pragmatic state investment in people, science and technology- to promote and support the development of world-class indigenous private and public sector operators, organisations and institutions able and ready to partner with their foreign counterparts to their mutual benefits and complementary to national development agenda.

    “There is need to demonstrate necessary political will and commitment to good governance (responsible, responsive, transparent, participatory and accountable, etc.) towards maximising the welfare of the citizenry as a matter of high priority,” it added.

    Furthermore, it called for the promotion of the patronage of made in Nigeria goods by giving locally produced goods preference and entrenching it in the National Procurement procedure and process; institute proper monitoring and evaluation mechanisms incorporating all interest groups for the implementation of policies on regular basis; and aggressive development of key selected mineral resources through backward integration especially those with high inter-industry linkages such as iron ore, zinc- led, bitumen, lime stone and coal; including selected agricultural produces for more industrial input supply from other sectors.

    Similarly, it called for the development of framework to capture businesses operating in the informal sector and transit them into the formal sector.

    On the role of the organised private sector towards ensuring that the economy achieves its dream of becoming an industrialised nation, the report called urged operators to develop the capacity and raise the quality of their members and leaders to more effectively engage in issues of policy concerns; facilitate the accumulation of technological capability to improve their competitiveness for export production as well participate actively in public-private partnership and investments in infrastructure.

    For labour unions, it stressed the need to sustain and deepen collaborations with the public sector, private sector, labour organisations, civil society organisations and other interest groups in policy campaigns and advocacy.

    “Achieving economic development through rapid industrialisation has remained a major challenge. Surprisingly, the quest for industrialisation has been a principal focus of the various administrations in the country.

    “Indeed, different economic development policies (with each having a bearing on the industrial sector) and several approaches to industrialisation have been experimented with.

    “There is therefore the concern as to why the several economic/industrial development policies failed to achieve the desired outcomes over time. This consideration motivated the need for this study,” it added.

    The broad objective of the study was to explore past and existing economic/industrial policies and the state of industrialisation in Nigeria.