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NAICOM urged to extend deadline for recapitalisation of Insurance firms

NAICOM

National Insurance Commission (NAICOM)

In a quest to give operators more time to explore their best option to apply, the Association of Registered Insurance Agents of Nigeria (ARIAN), has enjoined the National Insurance Commission (NAICOM) to extend the Jan. 1, 2019 recapitalisation deadline for insurance firms.

The group maintained that 10 years after an earlier recapitalisation was too short to begin a fresh recapitalisation exercise.

Recapitalization is a type of corporate reorganization involving substantial change in a company’s capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa.

Recall that the NAICOM had in June, 2018, 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 their capital base divided into three tiers.

The new capital requirements

Under the new Tier-Based Minimum Solvency Requirement (TBMSR), the minimum capital requirement (policyholders’ surplus/shareholders’ funds) for insurance companies remains as the base Tier 3 capital (N3 billion for General Insurance; N2 billion for Life).  Tier 3 companies are now only able to write retail insurances (micro insurance, motor, fire, agriculture, compulsory liability insurances, individual life, health and miscellaneous insurance). Tier 2 companies are required to have 150% of the base capital (N4.5 billion for General Insurance and N3 billionn for Life) based on the types of risks written. Tier 2 companies can write retail insurance as prescribed under Tier 1, including commercial and industrial risks and group life assurance.

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Tier 1 companies are ultimately required to have 300% of the base capital (N9 bilion for General Insurance and N6 billion for Life) to write all risks including annuity and exclusively Special Risks (e.g. energy and aviation risks) which are highly capital intensive in terms of risks retained on the balance sheet of the insurer in addition to any reinsurance capital purchased. Automatically, composite companies (Life and General Insurance) at any tier only need add both sides to make up the required capital, that is N5 billion for Tier 3, N7.5 biollion for Tier 2 and N15 billion for Tier 1.

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