By Modupe Gbadeyanka
Insurance companies operating in the country have been directed to increase their capital base to N15 billion from N5 billion.
Business Post reports that the last time the insurers were asked to raise their minimum capital was in February 2007. It was then said that Tier 1 firms should have N5 billion capital base; Tier 2, N3 billion; and Tier 3, N2 billion.
At an emergency meeting with Chief Executive Officers (CEOs) of the 57 licensed insurance companies on Wednesday, the industry regulator, National Insurance Commission (NAICOM), said this was in line with the Risk Based Supervision (RBS) model which requires a composite insurance company that intends to be a Tier 1 player to have N1 billion capital base.
The model also made it compulsory for a Tier 2 player to have a minimum solvency capital of N7.5 billion while a Tier 3 player is expected to have N5 billion minimum capital.
According to NAICOM, the new capital base will take effect from January 1, 2019 and under the new era, life insurance companies under Tier 3 will only be licensed to underwrite individual life, health and miscellaneous insurance; while the non-life under this category will be licensed to underwrite fire, motor, general accident, engineering (only classes covered by compulsory insurance), agriculture and miscellaneous insurance.
Also, life insurance companies under Tier 1 will be allowed to underwrite all Tier 2 risks and annuity; while the non-life firms in this category will be allowed to underwrite all Tier 2 risks and oil and gas (oil related projects, exploration and production), and aviation insurance.
In addition, life insurance companies under Tier 2 would be licensed to underwrite all Tier 3 risks and group life assurance; while the non-life firms in this category would be allowed to underwrite all Tier 3 risks and engineering (all inclusive), marine, bonds credit guarantee and suretyship insurance.
It would be recalled that a similar thing was done in the banking sector some years ago, which resulted into smaller banks merging to meet up with the N25 billion capital base.
Business Post reports that this same scenario will likely play out in the insurance sector with this new N15 billion minimum capital required from insurers in the country.
Smaller insurance companies will likely form an alliance to meet up while bigger firms will likely acquire others to become bigger.
Speaking on the matter, Commissioner for Insurance, Mr Mohammed Kari, who was Kari, who was represented at the meeting by the Director of Supervision at NAICOM, Mr Barineka Thompson, assured that no insurance company’s licence will be withdrawn.
He explained that the move was necessary because while inflation and interest rates had increased in the last 10 years, insurers were still operating with the 2007 capitalization.
“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 maintains the same capitalisation in the last 10 years.
“So, it is desirable for operators to now choose which tier they want to operate in. Some companies are finding it difficult to fulfil their obligations to their policy holders and shareholders because they are carrying risks above their limits,” he said.
