Mohammed Kari

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.

Implications

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.

Deal book 300 x 250
Deal book 300 x 250

Consolidated Hallmark Insurance in October last year raised ₦500 million through a rights issue.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

1 COMMENT

  1. Good info. Thanks for sharing.
    I think you should also do a write up on the limited businesses those in other tiers except tier 1 can do. Those in tier 1 of their group can do all the businesses of their group while the others can’t because of the limitation in capacity and legality.

    Once again, good writeup sir.

    Dada Oluwatobiloba .O.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.