The National Insurance Commission (NAICOM) has said there would be no borrowing option for insurance firms seeking to raise their capital base.
The Director of Policy and Regulation, NAICOM, Agboola Pius, who spoke at a seminar in Abuja, said the recapitalisation would be absolute paid-up share capital and distinct from solvency capital, capital fund, and capital base.
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What defines paid-up share capital:Â For an instrument to be treated as paid-up share capital, it must represent the most subordinate claim in liquidation of the insurer/ reinsurer. The investor is entitled to a claim, only on the residual assets that are proportional to its share of issued capital, after all senior claims have been paid in liquidation (such that it has an unlimited and variable claim, not fixed or capped claim).
More so, the principal is perpetual and never repaid outside of liquidation. Distributions are paid out of distributable profit or retained earnings; There are no circumstances under which the distributions are obligatory; It must not be a loan on the company or margin facility whatsoever.
Sequel to its directive that mandated insurance and reinsurance firms to raise their capital base, NAICOM asked both insurance and reinsurance firms to submit their recapitalisation plans on or before August 20.. The regulator of insurance firms also directed firms that have decided to adopt mergers and acquisition strategy to perfect their deals 60 days to the deadline.
Backstory: Recall that NAICOM had recently announced an increment in the minimum paid-up share capital of insurance and reinsurance firms.
In the circular signed by NAICOM‘s Director of Policy, Pius Agboola, the Commission said the new minimum paid-up share capital requirements would become effective from the commencement date of the circular for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than June 30, 2020.
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