Home Business News Unable to cope with new capital base, insurance firms consider merger/acquisition

Unable to cope with new capital base, insurance firms consider merger/acquisition

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Some stakeholders in the Nigerian insurance sector have expressed their willingness to consider mergers and acquisitions in light of the new capital base for the sector which was recently introduced by the National Insurance Commission (NAICOM).

Following NAICOM’s pronouncement on the issue, the stakeholders were said to have held a series of meetings in an effort to figure out how to cope with the challenges posed by the new capital requirement.

Note that NAICOM has fixed June 30th, 2020 as the deadline for the compliance with the new capital base.

Shareholder’s Stance: In the course of their meetings, stakeholders in the insurance sector looked at ways they can multiply their capital base within one year. They also considered merger and acquisition as the potential solution to the problem. More so, they agreed to seek for a possible extension of the deadline that had been given by their regulator, NAICOM.

Stakeholders’ Complaint: According to some stakeholders who chose not to be named, the new capital base has presented a huge challenge for insurance. According to the source, adherence to the new requirement is a lot more stringent to compared to the tier-based recapitalisation which was suspended last year.

“We have to just find a way to meet the requirement whether by acquisition or merger.  It is better for a company to be acquired or merge with another and have maybe, one or two seats on the board than to be liquidated.

“This recapitalisation is different from the tier based because any company that does not recapitalise after the one year given will go down.”

Despite the challenge, some other stakeholders have expressed optimism that insurance companies will soon conclude on how to resolve the matter with their board and management.

Coronation Research

Another source who also preferred anonymity, however, noted that it might be very challenging for the companies to get the capital they needed from the capital market. According to him, merger and acquisition might be the only way out.

Coronation Research

“But merger and acquisition also come with their own problems too, as the parties involved may not totally disclose all their liabilities.” 

The Backstory: Recall that the National Insurance Commission (NAICOM), recently increased the minimum paid-up share capital of insurance and reinsurance firms, a move which sent shock waves across the country’s insurance sector.

Life insurance firms’ capital base was raised from N2 billion to N8 billion, while general companies got a raise from N3 billion to N10 billion. Meanwhile, composite insurance companies’ capital was raised from N5 billion to N18 billion while the capital base for reinsurance companies was also increased from N10 billion to N20 billion.

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