‘Why mergers and acquisition will top insurers’ agenda for recapitalisation’

By Bankole Orimisan
Following the ongoing recapitalisation in the industry, the National Insurance Commission (NAICOM), is planning a palliative mechanism for underwriters, who could not recapitalise before
the December 31st, 2020 deadline.

The palliative, known as regulatory forbearance, would enable the undercapitalised firms form a consortium, by pooling all their resources together to form a strong single entity.
 
NAICOM, in May 2019, increased the capital levels for insurance and reinsurance companies operating in the market as follows: Life Insurance business from N2billion to N8billion; and General Insurance Business from N3billion to N10billion.
Others are: Composite Insurance Business from N5billion to N18billion; and Reinsurance companies from N10billion to N20billion with a deadline for the exercise initially set for June 2020, before it was moved to December.
 
Speaking at the Chartered Insurance Institute of Nigeria (CIIN) 2020 Business Outlook, in Lagos, last week, the Acting Commissioner for Insurance, Sunday Thomas, said the regulator will do everything possible to ensure that no insurance company is liquidated.

The Commission, he noted, would provide an orderly exit for undercapitalised companies, sadding that experience from previous exercise shows that “liquidation of firms often turns out to be difficult to handle due to issues around it, and it never favours both the regulator and operators.”
 
He said NAICOM will issue guidance note on recapitalisation by March end, even as it observed that some companies are still pursuing businesses that are putting holes in their pockets, noting that recapitalisation is really necessary, because when the industry is stabilised, it would help stabilise other sectors.
He said: “Recapitalisation will not lead to more branches in foreign countries that are as big as a local government in Nigeria. Moreover, the funds realised from this exercise will be used to underwrite big businesses, pay claims and support the economy.”

  
He said NAICOM would ensure transparency and efficiency, and orderliness, to ensure an enabling environment, palliative and level playing field to all.Others are ensuring that recapitalised companies are liquid; safety of funds raised – Payment into Escrow Account; orderly exit of undercapitalised companies, and efficient resolution of pre and post-recapitalisation governance/conflicts.
 
“We therefore invite the insurance sector to maximise the opportunities inherent in the 2020 Federal Government budget of sustainable growth and job creation, whilst also ensuring seamless transition to the new capital regime of the Industry,” Thomas said. Similarly, the Managing Director/Chief Executive Officer, Excel Professional Services Limited, Dr Oladimeji Alo, while spoke on, “The Nigerian Economy 2020 Issues, Challenges and Prospects for the Insurance Industry,” said most economic policies and plans for 2020 hold great prospect for growing the economy, promoting job creation, and reducing poverty.
 
He said: “The insurance firms that would do well in 2020 are those who had invested in their brand equity, innovation capabilities, talent management capabilities, information technology resources and capabilities. Individual firms would do well to pay attention to these critical areas in 2020.”

Head, Financial Institutions Ratings, Agusto & Co Nigeria, Ayokunle Olubunmi, urged insurers to harness the enormous untapped opportunities in the micro-insurance sub-sector
He identified challenges facing micro-insurance to include: low level of education, developing a low cost operating model, affordability of micro-insurance products, and availability of staff with the requisite skills.

Others are low awareness and trust issues, developing products that meet the customer needs, inadequate data, culture and religious beliefs, Negative perception about insurance and bottlenecks in obtaining approval for needed partnerships.
 
Earlier, the President, CIIN, Eddie Efekoha, said the Institute’s Nigeria’s Business Outlook Forum is a programme initiated to beam a searchlight on the economic and business issues that are likely to engage captains of industry and other business leaders in the new business year.“It is worth noting that the growth and relevance of this programme has been enhanced by the value the programme represents to stakeholders in the insurance industry,” he said.