Nairametrics| Insurance companies in Nigeria are now on the look out for additional ways of boosting their capital levels in order to meet up with the new regulatory requirements stipulated by the industry regulator.
Bloomberg reports that regulators have indicated that an audit of insurance will soon take place to ensure that insurance companies are not signing on more business than they’re able to pay out. The sharp downward spiral of the country’s economy has meant that risk based supervision involving stricter monitoring of the industry’s profitability, liquidity and capital-adequacy ratios will be embarked upon.
Based on these, the Chief Executive Officer of the Nigerian Insurance Association, an industry body, Olorundare Thomas, has laid out the possible options available to insurance companies, given the tightly shut nature of the industry which rules out raising equity or debt.
According to Thomas, the first option insurance companies have is to open up to acquisitions by foreign insurers. Just last week, Nairametrics reported that a South African firm was looking to buy 75% shares in UNIC, which would make it the comfortable majority shareholder.
A second option highlighted by Thomas was mergers between local, smaller firms as another way to boost capital levels so that insurance companies can take more risk. The final option was for firms unwilling to carry out any of the above to cut back on new business, in order to reduce their risk exposure, an option that is unlikely to appeal to firms desiring growth and increased profitability.
Given that insurance is becoming more popular in Nigeria, with coverage growing by 2 points in 2 years and premiums amounting to 313 billion naira at the end of 2015, insurance companies will be jostling to put themselves in as good a position as possible to get larger market share.
