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‘Why insurers should extend recapitalisation beyond December 31’

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Insurance. Photo: INVESTOPEDIA

With the rise in coronavirus cases across countries of the world and Nigeria, there are strong indications that the ongoing insurance industry recapitlisation exercise plans might hit the rocks as the pandemic locks down business operations in many States across the nation.

To check the rate of infection, the Federal and some State governments have embarked on certain measures such as closure of schools and tertiary institutions, partial or outright ban on social outings and religious gatherings, while other stringent measures might follow in the coming weeks.

These measures, according to experts, who spoke with The Guardian over the weekend would run the economy stranded, while both foreign and local investors might not be in a strong financial position to invest in the nation’s insurance industry post-coronavirus.

Before the coronavirus outbreak, the National Insurance Commission (NAICOM) had announced the 31st of December, 2020 as the deadline for all Insurance and reinsurance firms to recapitalise to a new capital threshold.

In the current exercise, NAICOM had raised the minimum paid-up share capital of a Life insurance company from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion. Re-insurance companies were directed to raise their capital base from N10 billion to N20 billion.

However, the virus has spread to more than 189 countries with many companies in those countries having to shut down business operations. While some multinationals planning to invest in the insurance industry have already concluded the discussion with their local partners, others are just at the preliminary stage of discussing, hence, raising concerns as to whether such proposed investment could come in post-coronavirus.

Investors’ anxiety, it was learnt, was because some of those multinationals planning to invest in the nation’s insurance sector are already badly affected by the impact of the epidemic, casting doubt on their financial capacity to invest by the time the virus subsides around June 2020 as speculated.

The closure of the two main international airports in Lagos and Abuja is a challenge to such investment unless the situation is addressed on time.

Although, there are nine months still left to the deadline date, the Investment climate the world over is cloudy with some of the investing firms from France, Italy, Spain, U.K, US and other European countries who deemed it necessary to invest in the Nigerian insurance industry before now, needing their respective governments’ bailout to stay afloat.

This, the Managing Director/Chief Executive Officer, Universal Insurance Plc, Ben Ujuatuonu, said, it’s no longer a secret that the global economy, as well as the local economy, have been affected by this epidemic, because the world is now a global village.

Stating that companies are already closing down across Europe and Asia and were having a financial challenge, he said, the drop in global crude oil price already has its implications on the nation’s 2020 budget that has made the federal government cut it down by N1.5 trillion.

The foreign loans meant to augment the budget, he said, might not be coming anytime soon, meaning that, the country will struggle to implement its budget, saying, the insurance industry is not isolated from it.

“With companies closing down globally and having financial challenges, it will be difficult to get Foreign Direct Investment (FDI) into the Nigerian insurance industry. Companies that wanted to invest in Nigeria before now are, by themselves needing a financial bailout. So, the recapitalisation exercise is going to be tough. Even, if the investors are to come, the closure of the two international airports will prevent their entry, at least for now,” he pointed out.

The other option, he said, is to look into the local market for funding, but that the reality is; most of these local investors might not have that financial muscle to invest now if the virus continues to spread in the next one month.

To him, “The capital market has been down for the past two to three weeks. So, where else will the funding come from? It’s going to be a challenging year for insurance operators, no doubt, however, I don’t see the regulator shifting the deadline again.”

On the other hand, Actuarial Scientist, Pius Apere said, there is no direct impact of the epidemic on the insurance industry recapitalisation exercise, as most of the foreign direct investment deals into the Nigerian insurance industry must have been concluded by relevant parties before the virus outbreak.

However, he felt the outbreak would be more felt by life insurance companies who have sold life and travel insurance covers to policyholders, adding that, they are expected to witness huge claims emanating from death as well as flight cancellations.

Moreover, the Managing Director/Chief Executive Officer, African Alliance Insurance, Mrs Funmi Omo, said: “Naturally, the slump in global crude oil, world recession (technically), economic meltdown and interest rate crash will result in the low drive for investments because the economic indices will not stimulate investments and economic growth.

For recapitalisation, plans have gone very far before the pandemic of Covid-19 erupted and so, it is not expected to impact on recapitalisation except the pandemic is not arrested within a short time frame.

According to her, it is doubtful the virus, like every other virus, has a lifespan. The only thing is that within the timeframe, its impact will be far-reaching on economic growth.”

Similarly, an anonymous operator has pleaded on NAICOM to extend the recapitalisation deadline till next year, following the virus outbreak that is obstructing funding to meet the new capital threshold.

According to him, “It is important for the market to appeal to NAICOM to extend the recapitalisation deadline from December 31, 2020, to 2021 because of this coronavirus issue. If the COVID-19 problem does not go away by the third quarter of 2020, it would be rather difficult for many operators to meet the December 31, 2020 recapitalisation deadline set by NAICOM.

The reality is that the current situation is adversely affecting all our strategies and plans to recapitalise on or before the deadline. I believe that if the market decides to approach the regulator on this issue as a body, something positive could be done.”


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