NAICOM Directs Operators to Submit Recapitalisation Plan

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Ebere Nwoji

The National Insurance Commission (NAICOM) has said sequel to its directive to insurance and reinsurance firms to raise their capital base, operating firms have August 20th, 2019, to submit their recapitalisation plans.

Also, firms that have decided to adopt mergers and acquisition strategy, were directed to perfect such deals 60 days to the recapitalisation deadline.

The commission stated this in a circular dated July 23rd, 2019, sent to the existing insurance and reinsurance firms.

The circular titled: “Re: Minimum Paid Up Share Capital Policy for Insurance and Reinsurance Companies,” signed by the Director, Policy & Regulation Directorate, NAICOM, Pius Agboola, NAICOM stated that the recapitalisation plan should include among others, capital status of the companies as at the last audited financial statements; board resolution on how to comply with the directives, and 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 were required to submit their plan of action on a file-and-use basis, just as, “companies that intend to merge or acquire another should submit their proposal after which they must comply with Section 30 and 31 of the Insurance Act 2003.”

The commission noted that after the submission is made, it “shall review and provide response on the submitted plans on or before September 17, 2019,” adding that the review may require meeting the board and management of each of the insurance companies on its recapitalisation plan.

The insurance industry regulator said it was engaging other regulatory bodies for possible palliatives in additional to those it is had considered.

It also maintained that in furtherance to the circular dated May 20, 2019, the minimum paid up share capital shall be through any or a combination of the following – existing paid up share capital; cash payment for new shares issued; retained earnings – capitalisation of u distributed profit; payment in kind (other than by way of cash) for new shares issues such as properties; treasury bills; shares; bond 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 could be achieved through merger and acquisition.

NAICOM said cash payment for new shares issued shall be deposited in the 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 acquisitions shall be concluded not later than 60 days to the deadline for the recapitalisation.

The commission had in a circular dated May 20th, 2019, titled: “Minimum Paid Up Share Capital Policy for Insurance Companies in Nigeria,” directed that existing insurance and reinsurance firms should upgrade their capital.

For instance, while those in life insurance business were directed to raise their minimum required capital from N2 billion to N8 billion; those into General business underwriting from their current N3 billion minimum capital to N10billion; composite underwriting firms from the present N 5 billion to 18 billion, while reinsurance firms were directed to upgrade theirs from the current N10 billion to N20 billion.

The commission had given the operators June 30th to comply.

The federal government recently warned firms in the insurance sector against any action targeted at undermining the recent directive for recapitalisation of insurance and reinsurance companies and urged the operators to embrace mergers and acquisitions.

President Muhammadu Buhari gave the warning while declaring open in Abuja, the National Insurance Conference.

He said instead of working against the success of the exercise, operators should explore available options, including mergers and acquisitions, as means of achieving their continued existence.

His warning came on the heels of threats by some investors and operators to challenge the industry regulator’s bid to increase the industry’s minimum paid up share capital by over 300 per cent.

President Buhari said his administration would prefer to see the operators utilising avenues that would help upgrade their capital rather than fighting the policy through any means.

He also said the Ministry of Finance would collaborate with National Insurance Commission (NAICOM) and insurance sector stakeholders to achieve 40 per cent financial inclusion rate by the year, 2020.

According to the President who was represented by the Permanent Secretary of the Ministry of Finance, Mahmud Isah-Dutse, “the insurance Industry has rules and regulations that all insurance companies must follow and this will cause them to struggle to understand and implement the rules, new technologies and innovations.

“With the recapitalisation directive issued recently, we expect operators to be truthful to themselves and consider all opportunities available for continued existence. While this could include mergers and acquisitions, it should not include fighting the policy just because you cannot raise the additional capital.”