Recapitalisation Cancellation Spurs Demand for Insurance Stocks


By Goddy Egene

Recent decision by the National Insurance Commission (NAICOM) to cancel its controversial recapitalisation exercise in the insurance sector is impacting positively on insurance stocks, THISDAY’s investigation has revealed.

The recapitalisation exercise tagged, ‘Tier Based Solvency Capital Increase,’ was announced in July by NAICOM and the regulator then gave operators   January 1, 2019 deadline to comply with the exercise. 

However, the insurance industry regulator later shifted the compliance date to October 1, 2018.  

This development attracted opposition from operators and shareholders with some  going to court to stop NAICOM from implementing the policy.

However, the commission in a circular dated November 23, 2018, bowed to pressure and announced the cancellation of the exercise.

THISDAY’s investigation showed that with this development, insurance stocks, which had suffered value erosion due to the uncertainties over the inability of some firms to recapitalise, are witnessing renewed patronage since the cancellation of the exercise.

For instance, the market capitalisation of the insurance sector, which measures the aggregate worth of the all listed insurance companies, has improved from N111.216 billion to N112.009 billion since the exercise was halted.

Also, the Nigerian Stock Exchange (NSE) Insurance Index has improved from negative 13.4 per cent to negative 12.10 per cent within the period the cancellation was announced and yesterday.

Market analysts said more investors are now going back to the insurance stocks since the uncertainties that surrounded  the recapitalisation exercise no longer exist. “Before the cancellation of the policy, investors in insurance stocks were very jittery because they never knew the fate that would befall their investments if the exercise had continued.  But now those worries have gone and some of the investors are increasing their stakes in insurance companies that have strong fundamentals. This is what is leading to the improvement we have seen since the cancellation of the recapitalisation exercise, “a stockbroker, Mr. Ayo Oguntayo, told THISDAY.

 NAICOM had announced an increase in the minimum capital base for life, non-life and composite insurance companies seeking to get licences to underwrite all risks in the country from N2billion, N3billion and N5billion, to N6 billion, N9billion and N15billion, respectively under its tier-based minimum solvency capital structure.

While January 1, 2019 was initially fixed for compliance, the commission later announced an October 1, 2018 deadline, which was not accepted by stakeholders, pushing them to take a legal action against the commission.

Already, some shareholders of insurance companies have sued the commission at the Federal High Court in Lagos for insisting on implementing the recapitalisation.