The National Insurance Commission (NAICOM) has released the new capitalisation requirements for insurance firms in the country. Under the risk based capitalisation requirements, each cadre namely life, non life and composite insurance firms have had their capital base divided into three tiers.
The last increase in capital base was in 2005 when NAICOM increased the capital base from ₦150 million to ₦2 billion for operators in the life insurance segment, ₦200 million to ₦3 billion for non life, and composite insurance firms from ₦350 billion to ₦5 billion.
The new capital requirements
Tier one is the highest capital base for each class. Tier three is the minimum capital base required for each class.
Life insurance firms now have three capitalization tiers. Tier one companies will be required to have ₦6 billion as capital. Tier two life insurance firms will be required to have ₦3 billion, while tier 3 firms will maintain the current requirements of ₦2 billion.
Non life insurance firms will now have three tiers. Tier one non life firms are mandated to have a capital base of ₦9 billion. Tier two firms in this segment are expected to have a capital base of ₦4.5 billion, while tier 3 firms will maintain the current capital base of ₦3 billion.
Insurance companies operating in the composite segment, that is all classes of insurance now have three tiers. Companies operating in the tier one will be required to have a capital base of ₦15 billion. Tier tow firms will need to have a capital base of ₦7.5 billion, while those in tier 3 will maintain the current capital base of ₦5 billion.
Deadline to meet the new requirements is January 2019.
The move could lead to several mergers and acquisitions in the industry. Raising capital through equity may be difficult for many of the firms, as they currently trade at ₦0.20 price floor. Retail investors who have suffered a huge loss on their investments, will also be reluctant to partake in the exercise.
In anticipation of the new requirements, several insurance firms had initiated moves to raise capital. Mutual Benefits insurance, earlier this month had obtained regulatory and shareholder approval to raise ₦5 billion through a rights issue. Wapic insurance in May last year obtained the approval of shareholders to raise up to ₦10 billion in fresh capital.
Consolidated Hallmark Insurance in October last year raised ₦500 million through a rights issue.