‘Clear N29.64b negative reserves before seeking fresh funds’

The insurance operators seeking recapitalisation have been advised to offset over N29.64 billion negative reserves before aligning their funds to the new minimum capital requirement, The Guardian has learnt.

The National Insurance Commission (NAICOM), which gave the new order, noted that the affected companies would need to shop for funds above the new statutory capital, which are N8 billion is for Life Operators; N10 billion for Non Life; N18 billion for composite and N20 billion for reinsurers.

“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.”NAICOM explained that negative reserves tantamount to depletion of the shareholders’ fund, hence operators have to first raise their shareholders’ fund to what it is presently – N2 billion for Life operators; N3 billion for Non Life and N10 billion for reinsurers.

The Guardian also learnt that as at 2017 financial year, negative reserves of Non Life operators stood at N18.24 billion, while that of Life operators was N11.13 billion and reinsurers, N27.29 million amounting to N29.64 billion.The insurance industry regulator had also charged operators to ensure their new capital is not a loan or margin facility whatsoever.

“For the avoidance of doubt, and for an instrument to be treated as paid-up share capital, the following criteria among others must be satisfied: It must represent the most subordinate claim in liquidation of the insurer/ reinsurer; the investor is entitled to a claim, only on the residual assets that is proportional with its share of issued capital, after all senior claims have been paid in liquidation (i.e has an unlimited and variable claim, not fixed or capped claim); the principal is perpetual and never repaid outside of liquidation.

“Distributions are paid out of distributable profit or retained earnings; there are no circumstances under which the distributions are obligatory and it must not be a loan on the Company or margin facility whatsoever,” NAICOM noted in a statement.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.