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Chuks Udo Okonta
The International Monetary Fund (IMF) has said Nigeria’s insurance industry minimum capital requirements are three to six times higher than other developing countries.
The IMF said this in a report entitled: Nigeria: Publication of Financial Sector Assessment Program Documentation – Detailed Assessment of Observance of Insurance Core Principles, stating that given the existing premium volume, the high capital requirements present a challenge to the attractiveness of the sector.
it maintained that countries under Solvency 1 region, usually require for insurers a minimum capital between US$4 million and US$10 million, stressing that current Nigeria minimum capital requirements of N2 billion for Life Insurance; N3 billion for Non-Life insurance; N5 billion for composite and N10 billion for reinsurance firms are three to six times higher than those of their counterparts in other climes.
It posited that while the high capital is sensible to ensure professionalism in the country, there is a need to study the appropriateness of the capital requirements to balance risk, return and market development.
IMF noted that the minimum paid-up capital of firms should be evaluated when introducing risk-based capital so that capital adequacy will reflect the risk that the insurer takes on.
It posited that though the government is pursuing policies to address the need for the sector to grow, but enforcement of compulsory insurance still remains suboptimal.
According to the global body, the enforcement of the six classes of compulsory Insurance is weak, and it called for more effective enforcement that will provide a substantial stable premium income for the industry.
The minimum capital for Life Insurance firms which presently stands at N2 billion amounts to US$5.08 million at exchange rate of N394 to one dollar; N3 billion for Non-Life life insurers amount to $7.6 million, while N5 billion for Composite is $12.69 million and N10 billion for reinsurers is $ 25.38 million.
Some insurance operators who spoke with Inspenonline on this, noted that the move by the National Insurance Commission (NAICOM) to increase the industry’s capital to N8 billion for Life insurers; N10 billion for Non-Life ; N18 billion for composite and N20 billion for reinsurers, failed to recognised the concern raised by the IMF.
They implored NAICOM to adopt the risk-based strategy proffered by IMF.