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Chuks Udo Okonta
The Federal Government through the National Insurance Commission (NAICOM) has introduced a 3-tier recapitalisation exercise for the insurance industry which will see new composite insurance firms jack their capital from N5 billion to N15 billion comes January 1, 2019.
To this end, composite insurance companies who are now interested to play in the Tier 1 category are now expected to increase their capital ftom N5 billion to N15 billion, while those interested in the same tier but operating life business are mandated to upgrade their capital base from N2 billion to N6 billion, even as non-life insurers planning to play in this Tier are expected to improve capitalisation from N3 billion to N9 billion.
While composite insurers willing to operate in Tier 2 are expected to increase their capital to N7.5 billion, non-life operators are mandated to increase their capital base to N4.5 billion, while life operators under Tier 2 category are expected to increase capitalisation to 3 billion.
However, for insurers willing to play in the lowest tier, which is Tier 3, they are expected to maintain the current capital base of the Insurance industry. To this end, Non Life insurance firms in Tier 3 will maintain N3 billion; Life Insurance operators, N2 billion and Composite insurers are to maintain N5 billion capital.
Speaking at a media parley in Lagos today to unveil the initiative, the Commissioner for Insurance, Mohammed Kari, said, the commission is not withdrawing any licence, but will re-issue new operating licences to operators to operate in the tier that they consider appropriate and have the capital.
According to the insurance regulator, the new arrangement had ceded high profiled businesses to tier one, while tier will also handle medium businesses and low businesses are left for operators in tire three.
Kari, who was represented by the Director, Supervision, the National Insurance Commission (NAICOM), Barineka Thompson, said, the recapitalisation became desirable as inflation and interest rates have increased in the last 10 years, while insurers were still operations with the same capitalisation of 2007.
“Interest rate has gone from single to double digit, interest rate has increased over time and with many macroeconomic and institutional factors on the upward trends, while the industry still maintain the same capitalisation in the last 10 years. So, it is desirable for operators to now chose which tier they wants to operate in. Some companies are finding it difficult to fulfill their obligations to their policyholders and shareholders because they are carrying risks above their limits,” he stressed.
Stating that this initiative will enhance soundness and profitability of insurers through optimal capitalisation, he added that, the introduction of proportionate capital that supports the nature, scale and complexity of the business conducted by insurers.
“In this instance, there is no cancellation of license, but operators will be subjected to solvency control levels and no mandatory injection of fresh capital by insurers, ” he pointed out.
The difference between the three tiers, according to him, is in the nature of businesses they would be allowed to underwrite, pointing out that the guideline on this would be issued on 3rd of August, 2018.
To effectively execute the new initiative, NAICOM has slated August 6-10, 2018, for awareness session with board members and key management staff of insurance companies.
The regulator also plan to release the transition guideline by August 3, 2018, issuance of notification letter on assessed capital level will be from August 13 to 17, 2018 and submission of board’s decision by operators to NAICOM will be not later than September 14, 2018.
Speaking earlier, Deputy Commissioner for Insurance, Sunday Thomas said, the recapitalisation scheme is aimed at developing and applying appropriate tools that consider the nature, scale and complexity of insurers, as well as non-core activities of insurance groups, to limit significant systemic risk and thereby achieve soundness of insurance companies and contribute to the achievement of stability of the financia system.