- European, American, S’Africa financiers make incursion into industry
With the new benchmark on minimum capitalisation for insurance underwriting firms announced by the National Insurance Commission (NAICOM), coupled with indigenous investors’ apathy to insurance stocks, foreign investors have moved to dominate Nigeria’s insurance market, THISDAY’s investigation has revealed.
THISDAY gathered that foreign investors from Europe, America and South Africa are directing their reserved funds into the Nigerian insurance market to take advantage of the new capital regime and indigenous operators’ inability to raise funds from the Nigerian stock market to extend their business portfolios.
NAICOM, had announced on May 20, 2019, a new capital regime for all categories of insurance companies in Nigeria.
In a circular by NAICOM’s Director, Policy and Regulation Directorate, Mr. Pius Agboola, on behalf of the Commissioner for Insurance, Alhaji Mohammed Kari, the commission had said the new capital regime would take effect from June 30, 2020 for existing insurance and reinsurance firms, but with immediate effect for new firms entering into the business.
Under the new capital regime, life insurance underwriting firms, which currently have a minimum paid up share capital of N2 billion, will compulsorily shore up their capital to N8 billion, representing a 200 percent increase.
Insurance firms underwriting general business will by the new paid-up share capital regime, shore up their capital from N3 billion to N10 billion.
Composite insurance firms, that is, firms underwriting both life and general business will have to raise their capital from the current N5 billion level to N18 billion.
Reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion.
The new guidelines are coming after NAICOM’s failure in its initial bid to shore up the minimum operating capital of insurance firms through its Tier Base Minimum Solvency Capital.
The scramble for Nigerian insurance sector by foreign investors, it was learnt, actually started two years ago when NAICOM adopted the Risk-Based Supervision model from the European market.
The regulator had hinted the operators that the new model would require injection of fresh capital into their business.
This, according to the commission, was to give the Nigerian insurance market a global outlook and strengthen insurance firms to be in a position to underwrite big ticket businesses.
In their bid to meet the commission’s demands, the insurance operators turned to the foreign investment markets in search of investors and technical partners to inject funds and technical expertise into their operations.
This has seen global players like AXA, Sanlam, AFIG Funds, and Allianz, among others, acquiring stakes in insurance firms in Nigeria.
The foreign investors have since 2018 acquired stakes in NEM Insurance and Ensure Insurance, among others.
THISDAY gathered that the latest is the acquisition of 39.25 per cent stake in Royal Exchange General Insurance by the InsuResilience Investment Fund (IIF).
It was also gathered that Royal Exchange Life Insurance, Sovereign Trust Insurance, Niger Insurance are currently shopping for foreign investors in a bid to meet the regulator’s demand.
The IIF was established by the German Development Bank (KfW) and managed by Swiss-based Impact Investment Manager, BlueOrchard Finance Investment Limited (BlueOrchard).
Its investment in the Nigerian insurance sector has resulted in the injection of N3.6 billion capital into the Royal Exchange General Insurance (REGIC) .
The Managing Director of Royal Exchange Mr. Benjamin Agili, described the investment as a welcome development.
He said: “As one of the leading non-life insurance companies operating in the insurance market in the country and having a strong presence in the agric-insurance space through its partnership with the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) and some state governments, this investment by the KfW is expected to have a huge impact on the company’s presence in the agric-insurance space to enable REGIC to increase its presence even further.”
Prior to this acquisition, a leading African Private Equity Fund Manager, Advanced Finance and Investment Group (AFIG Funds) had acquired 29.9 per cent stake in NEM Insurance Plc, just as Allianz had in July last year acquired Ensure Insurance, formerly Union Assurance.
Other firms which have witnessed ownership dilution through foreign investments include NSIA, which acquired 96.15 per cent in ADIC Insurance, a former subsidiary of Diamond Bank Plc; Mutual & Federal Insurance Company, South Africa, which acquired 70 per cent of Oceanic Insurance Company Limited, formerly owned by Oceanic Bank Plc.
Old Mutual Nigeria Services Company (Old Mutual Nigeria) also acquired 70 per cent of Oceanic Life Assurance Limited, a subsidiary of Oceanic Bank.
Others are UBA Capital Holding Limited, which has 50 per cent of UBA Metropolitan Life, formerly owned by United Bank for Africa Plc; FBN Holdings, which owns FBNlife in which Samlam Group South Africa now has 35 per cent stake; Assur Africa Holding acquired 67.68 per cent of Mansard Insurance, formerly owned by GTBank; while New India Assurance Company has 51 per cent stake in Prestige Assurance Plc.
Also, AXA SA acquired the majority stake in Mansard Insurance and changed the firm’s name to AXA Mansard Insurance; Metropolitan International Holdings (Proprietary) Limited acquired 100 per cent of UBA Metropolitan Life and changed it to United Metropolitan Nigeria Life Insurance Limited; Old Mutual completed the firm’s acquisition from Ecobank Group (after the bank acquired Oceanic Bank) and changed its name to Old Mutual Nigeria.
According to NAICOM, more than 12 foreign investors have ventured into the country to acquire new firms between 2012 and 2018.
Speaking on the reason for the ongoing interest and scramble for equities in Nigerian insurance firms, capital market operators in their analysis said the investment talks between foreign investors and Nigerian insurance firms were ongoing because the outlook for Nigeria’s insurance sector was positive.
One of the capital market operators who spoke to THISDAY on the development attributed this to low prices of insurance stock and foreseen brightness of the sector’s future.
“As you are aware, insurance stocks are very affordable now since the Nigerian Stock Exchange (NSE) introduced a new pricing methodology and par value rule in January last year.
Speaking further on the development, Agili, the Royal Exchange boss whose firm is the latest toast for foreign investor, said: “Let us look at it this way; as the nation is developing, everything is going to global best practice and time is coming when it will no longer be a question of how Nigeria is doing it. Everybody is looking towards best practice, what is this best practice – if it takes the foreigners to bring in the best practice into the industry it is welcomed; I don’t think the market is complaining.
“On the issue of will it be the end of indigenous ownership of the operating firms? The truth is that NAICOM has put a benchmark on investment and the issue is who has the money should come in. The issue is this; there is a problem now. The money is not in Nigerian market. Most of them like Allianz or AXA have huge reserved capital in excess of hundreds of millions in their reserves. It gives them the opportunity to move into new markets and globalise their operations. When the banks recapitalised many years ago, the market was more robust; so they quickly ran to the market and got their money, but now a number of insurance firms that went to market didn’t get anything and you have a threshold that you have to achieve for it to be valid.
“If you don’t achieve the threshold, that means if you have spent say N400 million in the cost of that you have to refund all the money.”
He said in the case of Royal Exchange, the fund would enable the company to meet the regulator’s benchmark and expand its operations in agric insurance.
The Group Managing Director of NEM Insurance, Mr. Tope Smart, who is also the Chairman Nigeria Insurers Association (NIA), said foreign investments into the industry was a good development that would not only improve on the industry’s capital, but improve on technical knowhow of operators and enable them to operate according to global standards.
He said the recent foreign investment into his company would help in accelerating the growth of the firm.
“We are delighted to welcome AFIG Funds as a significant shareholder in NEM at such an exciting time in the company’s evolution. This partnership with AFIG Funds is the outcome of several years of constructive engagement, as well as a thorough internal strategic process to identify and engage with the best long-term institutional partner for our company. We look forward to continue to benefit from AFIG Funds’ extensive experience investing in strong African companies particularly in financial institutions. We believe this partnership will accelerate the realisation of our growth ambitions within Nigeria and across the continent. We are confident this will be a fruitful and mutually rewarding partnership.”