Insurers enhance liquidity with asset stripping, assure investors
The ongoing recapitalisation exercise in the insurance sector may have hit “high gear” as operators are now enhancing their liquidity position with the sale of assets that are less requisite.
The move, aimed at closing the gaps in the required share capital in line with the new minimum threshold, is yielding positive results for some.
While earnings by the industry operators could serve as a means to shore up the capital, others are opting for capital raise at the market or planning mergers and acquisitions.
To meet the June 2020 recapitalisation deadline given by the National Insurance Commission (NAICOM) to all underwriting companies to upgrade their capital to the new threshold, Cornerstone Insurance Plc, said it is making up its required capital as directed by the commission.
The underwriter, being a composite underwriting firm, needs to upgrade its capital to N18 billion to continue to operate beyond June 2020. The regulatory mandate is against the current capital base of N5 billion, while Life insurance firms were required to increase their minimum capital requirement from N2 billion to N8 billion, amounting to 400 percent increase in their capitalisation.
Similarly, General insurance companies are to raise their capital base to N10 billion from N3 billion, even as Reinsurance will now need N20 billion capital base to operate in Nigeria.
The Group Managing Director/Chief Executive Officer, Ganiyu Musa, in an interview with journalists at the company’s Head Office in Lagos, said the company is now in a comfortable financial situation to scale through the exercise.
According to him, the disposal of the company’s property along Lekki axis has further increased the liquidity of the insurance company to meet and surpass expectations.He stated that the company would have loved to keep the property for the long run, but was challenged with the fact that real estate investment is not admissible in the ongoing recapitalisation exercise.
This, according to him, necessitated the sale of the building for an amount that covers the cost of the building project and still left with profit.“We want to hold the building for the long term, but under the ongoing recapitalisation, real estate investment is not admissible.
“So, we took the decision of selling the property and we made handsome profit from it. This has put us in a stronger financial position to scale through the exercise, while making our balance sheet stronger and healthy,” he said.He also said there were preliminary discussions with two or three underwriting companies on consolidation to make Cornerstone brand a stronger one post recapitalisation.
Musa expresses the hope that consolidation makes better economic sense in recapitalisation rather than throwing in capital, adding that consolidation nurtures expertise, improves technical capacity, aside the financial strengthening it brings to the adopting company.He said company came out from its loss position of N1.7billion in 2017 to N1.8billion profit in 2018, even as the 2019 profit outlook is showing sign of higher profit from that of the previous year, judging from its 2019 third quarter report.
The company, he said, is fulfilling its civic obligation of paying genuine claims as and when due, investing in information technology to give customers the best and seamless services, while working towards ensuring that shareholders gets good returns on their investments. According to him, the fund pooled in the recapitalisation would enable operators to undertake good underwriting; make good investment; deploy robust technology and develop human capital.