Some insurance companies are already initiating the process of recapitalising their minimum capital to N10 billion and N15 billion for life non-life operators respectively, LEADERSHIP can now reveal.
LEADERSHIP had earlier reported that some underwriters have embarked on self-recapitalisation exercise in a move to move ahead of the industry.
From investigation, by 2025, the insurance industry will undergo a fresh recapitalisation exercise , after the Senate passed the Consolidated Insurance Bill into law, specifying N10 billion for life insurance firms, N15 billion for non-life business and N35 billion for Reinsurance companies in the country.
Although, the bill will now be transmitted to the House of Representatives for concurrence and if the lower House concurs with the provisions, it will then be transmitted to the country’s president for assent before becoming a law, there are indications that, the bill will scale through the remaining processes to become law, possibly, when the House returns early next year.
Moreover, should the House of Reps not concur with the position of the Senate, both chambers will set up a committee to harmonise their positions before transmitting it to the president, a scenario market observers said, may not arise.
However, the chairman, Insurance Industry Consultative Council (IICC), Yetunde Ilori is optimistic that the bill will scale through the remaining processes with ease and become law in the earlier part of next year.
Ilori, who is also the president of the Chartered Insurance Institute of Nigeria (CIIN), while speaking at the 2024 IICC Media Retreat in Asese, Ogun State at the weekend, noted that, the operators, brokers and all other arms of the sector are working with the industry regulator, that is, the National Insurance Commission (NAICOM) to ensure smooth passage of the Consolidated Insurance Bill into Law as soon as possible.
We are giving the bill the needed push and support to ensure it becomes a reality because we believe it will revolutionise the industry and deepen insurance penetration in the country.
While LEADERSHIP exclusively learnt that some underwriters have gone ahead to increase their capital to the new benchmark earlier than the bill, others who are yet to do so, will have to firm up their recapitalisation process whose deadline would be made known by NAICOM in the first half of 2025.
Hence, non-life operators will increase their benchmark from N3 billion to N15 billion; life insurers from N2 billion to N10 billion and Reinsurers from N10 billion to N35 billion, translating to about 500 per cent capital raise.
The Senate had earlier passed the bill sponsored by the chairman of the Senate Committee on Banking, Insurance and other Financial Institutions, Adetokunbo Abiru.
This, however, signifies a new dawn for insurance industry in the area of recapitalisation, after the earlier two failed attempts in 2019 and around 2021 to do so, it was learnt.
The industry currently operates with the minimum capital bases of N2 billion, N3 billion and N10 billion for life, non-life and reinsurance businesses respectively, as specified in the last recapitalisation exercise that ended in 2007.
By next year, when the new minimum capital benchmark would have commenced, the insurance sector would have operated with the same capitalisation for over 18 years despite a huge change in business dynamics occasioned by inflation, forex volatility, insurance replacement cost hike, among others, within those years.
While attempts were made in 2019 and 2021 to recapitalise the industry, they were halted with litigation cases that make a mockery of the aborted exercises, a flaw that was corrected in the proposed recapitalisation by tying it to the bill.
A new twist to the new phase of capitalisation, findings revealed, however, is that it is going to be a Risk-based capital, whereby your level of capitalisation would be defined by the risk appetite of each underwriter, although the specified amounts would be the minimum entry capital.
Recall that the Senate passed the bill after considering the committee’s report clause by clause at the Committee of the Whole, chaired by the Deputy Senate President, Barau Jibrin. It was passed after most lawmakers supported it when Jibrin put it to a voice vote.
The bill, which passage has been commended by NAICOM seeks to regulate the insurance business in Nigeria by consolidating various existing legislations such as the Insurance Act, 2003; the Marine Insurance Act; Motor Vehicles (Third Party Insurance) Act; the National Insurance Corporation of Nigeria Act; and the Nigeria Reinsurance Corporation Act.
Section 15 of the bill states that; (1)A person shall not carry on insurance business in Nigeria unless the insurer has and maintains the minimum capital, in the case of (a)non-life insurance business, the higher of(i) N15,000,000,000.00 or (ii)risk-based capital determined by the commission (b)life assurance business, the higher of (i)N10,000,000,000.00 or (ii) risk-based capital determined by the Commission and ( c) reinsurance business, the higher of (i)N35,000,000,000.00 and (ii) risk-based capital determined by the Commission.
While presenting the committee’s report, Abiru had said the increments were necessary because of the depreciation in the value of Nigerian currency.
The lawmaker also explained that the increase was because of the Finance Act 2022, which redefined the composition of the capital, international competitiveness and AfCFTA.
He also emphasised that the provisions of the current insurance law do not resonate with current realities and cannot address contemporary challenges in the insurance industry.
“They do not resonate with the current dynamics and evolving needs of Nigeria’s insurance industry. All these legislations have surpassed the three-decade mark and the lack of issues that can adequately address contemporary challenges and support growth and innovation in this leading industry. These legal obsolescence have led to some of the regulatory inefficiencies in the insurance industry, and these have also hampered the industry’s ability to successfully compete on a global level,” Abiru said.
He assured that the bill’s new provisions would benefit the insurance industry and develop the country’s economy.
“Another objective is that it will ensure that the insurance sector contributes positively to the principal objectives of the financial system in order to make Nigeria Africa’s financial hub and one of the 20 largest economies in the world,” he noted.
Ondo South Senator Jimoh Ibrahim expressed concerns that the increment of insurance capital will lead to the extinction of insurance companies in the country.
“We only have one re-insurance company, and are now increasing the capital. As a matter of fact, 20 per cent of that will be deposited in CBN forever. This increase will lead to their death,” he argued.
The senator, who owned the Nicon Insurance Ltd and Nigeria Reinsurance Corporation until they were taken over by AMCON in 2021 over an alleged debt, recommended that the current capital requirement of N2 billion for insurance companies be retained.
However, Ibrahim’s proposal was neither seconded nor supported when the deputy senate president put it to vote. Instead, the lawmakers voted to retain the committee’s recommendations.