23 insurers risk sanctions

• Operators push for extension of recapitalisation deadline
• Regulator keeps mum

Barely three weeks to the December 31 deadline given to insurance companies to reach 50 per cent of the new capital threshold, 23 companies are yet to kick-start the process of meeting the benchmark.

About 14 companies are on the verge of meeting the deadline, while 10 firms might have met or surpassed the requirements ahead of time. Also, four of the underwriting firms are still struggling to beat time, according to investigation by The Guardian.

Amidst requests for extension of the deadline, the National Insurance Commission (NAICOM), which had earlier insisted there was no going back on the deadline, has kept mute.

Yesterday, the Head, Commissioner for Insurance Directorate (NAICOM), Rasaq Salami, who was reached for an update on the position of the regulator, said he had “no comment” on the matter.

Of the 58 insurers, it means that 37 firms are yet to meet 50 per cent capital threshold. This translates to about 60 per cent of the underwriters in the insurance market.

Given the prevailing challenges in the nation’s insurance industry, there are doubts regarding the ability of most underwriting firms to fully recapitalise by September 30, 2021, The Guardian gathered.

Already, the first phase of the agenda seems to have hit brick wall, with most operators, less than four weeks to the end of the month, yet to meet 50 per cent recapitalisation as stipulated by NAICOM.

Industry stakeholders, who spoke to The Guardian, at the weekend, said the target might not be realistic after all, going by the huge impact of COVID-19 on the financial services sector, coupled with the recent nationwide #EndSARS protests that further worsened the situation.

Operators are convinced that it will take businesses, especially insurance companies, longer time to ascertain the full extent of loss and recover from the shocks.

NAICOM had extended the recapitalisation deadline for insurance and reinsurance companies to September 30, 2021, from December 31, 2020.

The Commission maintained that insurance companies that failed to satisfy the required 50 per cent minimum paid-up capital by December 31, 2020, might be restricted on scope of business they would transact.

So, the regulator, insider sources revealed, is not considering shifting the deadline again. Although, there are arrangements for mergers and acquisitions (M&A) by companies unable to recapitalise.

Life and general insurance companies are asked to shore up their existing minimum paid-up capital from N2 billion and N3 billion to N4 billion and N5 billion respectively by the end of December 2020, and meet the final minimum paid-up capital requirements of N8 billion and N10 billion respectively by the end of September 2021.

Composite companies and reinsurance firms were asked to shore up from existing minimum paid-up capital of N5 billion and N10 billion to N9 billion and N12 billion by end of December 2020 to N18 billion and N20 billion respectively by the end of September 2021.

An insurer, who spoke on condition of anonymity at a forum in Abeokuta, Ogun State, said the operators requested for the recapitalisation exercise process to be concluded in December 2021 while the interim milestone assessment scheduled for December be stepped down.

The source said the operators had earlier appealed to the Commission to waive the December 2020 milestone.

“The waiver will give the insurance and reinsurance companies more time to settle back to business and pursue their full recapitalisation programme to meet the commission’s set objectives by December 31, 2021,” he said.

He said operators were more concerned about the aspect relating to attainment of certain thresholds by December 31, 2020, failing which the commission might restrict the scope of business the insurance or reinsurance companies will transact.

Chairman, Mutual Benefits Assurance Plc, Dr. Akin Ogunbiyi, who fielded questions on the matter in an interview with The Guardian, criticised the ongoing recapitalisation exercise, describing it as the greatest disservice to operators and the industry.

Ogunbiyi said the exercise had created confidence crisis in the industry and could kill it if the deadline was not reversed or given a longer-term.

He said: “In fact, something drastic needs to be done to reverse this new capital exercise. Even the people doing insurance don’t know what will happen. If an industry is working with N5bn and they are not able to use it for profitability, and you say increase it to N18bn, what are we insuring?

“Government should hear it from me; it is killing the industry. If nothing is done quickly, either to reverse this or to give a three-year or long-term period for the recapitalisation, the industry is gone. Today, the insured doesn’t even know what to do. I can tell you that only five insurance companies have passed that recapitalisation stage, out of many we have in the country. Is that the kind of industry that we want?”

On Government’s participation, Ogunbiyi argued that, while government was pushing for recapitalisation, it was not patronising the insurance companies in the same mode it partners with commercial banks.

“What is the capacity that five of them will have to absorb the risks that we have currently, where the informal sector is not part of the risk you are taking? It is only the corporate world. And you say people should move from N2 billion to N8 billion, and N3 billion to N10 billion capital base. How much is the capital base of banks? N25 billion? Government will pass the budget; everything goes through the commercial banks; but we don’t have government patronage in insurance.

“At the current capital base, the industry can absorb any risk the government would give. At N3 billion, the Nigerian insurance industry is the most capitalised within the African continent. For countries with a higher contribution to Gross Domestic Product (GDP) in Africa, what are the capital requirements they are operating with? Why is it that the only solution the government has for insurance companies is to increase capital?”

With the economy growing slowly, Ogunbiyi said the market was not favourable for firms operating in Nigeria. “Despite a population of about 200 million, insurance penetration is still below 0.5 per cent in Nigeria,” he said.

To buttress his point, Ogunbiyi said insurance companies on the Nigerian Stock Exchange (NSE) had become penny stocks in the capital market, as their values were as low as 50kobo.

“They will succeed in killing this industry. When you say companies should increase capital, is it in an economy that is not growing? Where are the productive sectors of the economy? Where is trade, where is the government? Everybody is barely surviving; nobody is thinking of insurance and you wake up to say go to N18bn. Insurance companies have become penny stock on the stock market. How many insurance companies have paid dividends in the last 10 years? Where are the investors that will bring in the money?”