Economy
New Solvency Requirement will Boost Financial Health of Insurance Firms—Expert
By Modupe Gbadeyanka
Managing Director of Leadway Assurance Company Limited, Mr Oye Hassan-Odukale, has commended the National Insurance Commission (NAICOM) for introducing the Tier-Based Minimum Solvency Requirement (TBMSR), saying it was long overdue.
According to the insurance expert, with this restructuring, insurers do not have to be compelled to increase capital to underwrite risks that stress their capital without delivering commensurate returns to capital providers/shareholders.
Mr Hassan-Odukale believes that the restriction will foster the emergence of players with capacity to become retail specialists or become specialist underwriters of big-ticket risks in critical sectors of the economy, such as the aviation and oil & gas, whilst accelerating the growth of the industry and its contributions to the Gross Domestic Product (GDP) of the country.
The Leadway Assurance chief, who doubles as Chairman of the Sub-Committee on Publicity and Communication of the industry’s Insurers’ Committee, said the introduction of the solvency requirement for insurers in Nigeria commencing January 1, 2019, will help to restructure the market in a way that insurers can choose which part of the consumer segment (retail, commercial or industrial) is best served based on the capital fund that it holds or is able to deploy.
“The news of NAICOM’s introduction of TBMSR is a positive one. I am confident that it is an initiative with potential upside for the industry to grow and take its rightful position as a formidable contributor to our national economic activities, growth and development as it is in developed economies.
“It is high time we moved beyond the 0.3 per cent contribution to GDP and improve our ranking within the comity of African insurers (heavily dominated by South Africa) as measured by the African Insurance Barometer.
“Overall, we should expect an improvement in the capacity and reputation of the industry on the back of unwavering market discipline, improved claims settlement, stronger local retention, increased prudence and promotion of appropriate pricing,” he submitted.
Under the new Tier-Based Minimum Solvency Requirement (TBMSR), the minimum capital requirement (policyholders’ surplus/shareholders’ funds) for insurance companies remains as the base Tier 3 capital (N3 billion for General Insurance; N2 billion for Life). Tier 3 companies are now only able to write retail insurances (micro insurance, motor, fire, agriculture, compulsory liability insurances, individual life, health and miscellaneous insurance).
Tier 2 companies are required to have 150 percent of the base capital (N4.5 billion for General Insurance and N3 billion for Life) based on the types of risks written. Tier 2 companies can write retail insurance as prescribed under Tier 1, including commercial and industrial risks and group life assurance.
Tier 1 companies are ultimately required to have 300 percent of the base capital (N9 billion for General Insurance and N6 billion for Life) to write all risks including annuity and exclusively Special Risks (e.g. energy and aviation risks) which are highly capital intensive in terms of risks retained on the balance sheet of the insurer in addition to any reinsurance capital purchased.
Automatically, composite companies (Life and General Insurance) at any tier only need add both sides to make up the required capital, so you will have N5 billion for Tier 3, N7.5 billion for Tier 2 and N15 billion for Tier 1.
Speaking on how the TBMSR will affect the solvency margin of Nigerian Insurers, Mr Hassan-Odukale added, “It is important to note that all insurance companies already fall within each restructured tier therefore, no company needs to raise additional capital unless they have existing capital deficiency or prefer to play within a tier above its current capital level.
“Leadway Assurance which falls within the Tier 1 bucket currently has shareholders’ funds valued in excess of N40 billion compared to N15 billion required for a Tier 1 composite insurer.
“A number of other Nigerian insurers are also within this tier. We believe this TBMSR is good for our industry as it helps to promote the financial health of insurers and ultimately consumer confidence. Nigerian insurers are already at different levels of the tiered system.
“Each company will then be placed within the bucket that they already belong. Should companies now decide to play at a level higher than their current tier, the shareholders can take capital actions either by mergers or injection of new funds. With the TBMSR, insurers simply play within the limit of their solvency capacity,” Mr Hassan-Odukale said.
He also added that unlike the previous capitalization exercise, no insurer is being asked to shore up capital and neither will anyone’s licence be withdrawn either, stating that companies simply get to choose which tier they want to operate in, ensuring that they stay within their capacity so that they are able to meet the obligations of the risks that they carry.
“If a Tier 3 company then wants to play at Tier 1 level, nothing stops them from embracing voluntary merging with other companies in order to scale up their capacity and build more formidable and globally-competitive institutions that would create value for stakeholders and investors.
“At the end, the major difference between the three tiers will be in the nature of risks underwritten by each insurer depending on each insurer’s current capital position. To reiterate, the choice of whether to increase capital is left to the insurer who must decide within which tier it wants to play the market as the regulator has not required any company to increase capital above the current minimum.”
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange jumped 1.04 per cent on Wednesday, June 17, with the market capitalisation adding N26.99 billion to settle at N2.619 trillion compared with the previous session’s N2.592 trillion, and the Unlisted Security Index (NSI) rising by 45.1 points to close at 4,378.45 points, in contrast to the preceding day’s 4,333.35 points.
The rally was driven by the gains reported by two securities, which outweighed the losses posted by three securities, led by FrieslandCampina Wamco Nigeria Plc, which dipped by N1.95 to N178.19 per unit from N180.14 per unit. Geo-Fluids Plc lost 19 Kobo to close at N2.61 per share compared with Tuesday’s closing price of N2.80 per share, and Food Concepts Plc slid by 1 Kobo to N1.77 per unit from N1.78 per unit.
On the flip side, Central Securities Clearing System (CSCS) Plc recorded a N6.33 appreciation to trade at N86.57 per share versus the previous day’s N80.24 per share, and Light House Financial Services Plc grew by 10 Kobo to N1.13 per unit from the N1.03 per unit it closed a day earlier.
In the midweek session, the value of stocks traded by investors surged by 181.0 per cent to N128.3 million from the preceding session’s N45.6 million, the volume of securities increased by 305.6 per cent to 2.8 million units from Tuesday’s 688,290 units, and the number of deals executed jumped by 6.5 per cent to 33 deals from 31 deals.
At the close of trades, Great Nigeria Insurance (GNI) Plc remained the most active stock on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and CSCS Plc with 67.3 million units exchanged for N4.6 billion.
GNI Plc also ended as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infracredit Plc with 2.3 billion units sold for N6.5 billion, and Resourcery Plc with 1.1 billion units traded for N415.7 million.
By Dipo Olowookere
As part of moves to boost its internally generated revenue (IGR) and increase its streams of income, Ayobo-Ipaja Local Council Development Area (LCDA) is considering commercial ostrich and crocodile farming.
The council recently held a sensitisation programme, where agribusiness experts engaged stakeholders, including residents and entrepreneurs, on the viability of this.
The programme provided participants with the knowledge on investment requirements, training opportunities, startup funding, and regulatory frameworks guiding ostrich and crocodile farming in Nigeria.
The chairman of Ayobo-Ipaja LCDA, Mr Lukmon Agbaje, commended the initiative, reiterating his administration’s commitment to promoting innovative agricultural practices as a pathway to sustainable development.
He described agriculture as a critical driver of economic transformation, stressing that modern farming has evolved into a profitable business venture with immense potential for youth empowerment and enterprise development.
Mr Agbaje further assured participants of the council’s readiness to partner with investors, agricultural institutions, and other relevant stakeholders to facilitate training, capacity building, and access to opportunities across the agricultural value chain.
On his part, the council’s Head of Department of Agriculture, Mr Wale Atepe, emphasised the growing market demand for products such as leather, meat, feathers, and other valuable by-products, adding that strategic investment in the sector could unlock significant opportunities for employment, wealth creation, and export earnings.
By Adedapo Adesanya
The Naira depreciated against the United States Dollar by 0.21 per cent or N2.89 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, June 17, to N1,360.07/$1 from Tuesday’s closing rate of N1,357.18/$1.
In the same vein, the Nigerian Naira weakened against the Pound Sterling in the official market during the session by N4.42 to trade at N1,824.81/£1 versus the preceding session’s N1,820.39/£1, and lost N4.19 on the Euro to sell at N1,577.96/€1 compared with the previous day’s N1,573.79/€1.
However, at the GTBank segment, the local currency gained N1 against the greenback yesterday to exchange at N1,372/$1 versus N1,373/$1, and at the parallel market, it remained unchanged at N1,385/$1 at midweek.
The Naira’s performance comes amid tight inflows from exporters, non-bank corporates, and foreign investors, evidenced by the slow movement of the country’s gross external reserves level of $50.505 billion, despite muted inflows from oil sales after a recent drop in prices.
There have been reduced FX market interventions by the Central Bank of Nigeria (CBN) as it maintains its stance to keep the local unit stable enough to retain foreign investments.
The Nigerian government also dismissed a report suggesting that it was considering new taxes on telecommunications services and petroleum products, which would have spooked investors.
The federal government said that the reports misrepresented recommendations contained in the International Monetary Fund (IMF) Article IV Consultation Report on Nigeria, explaining that the recommendations were advisory and do not constitute government policy or binding obligations on Nigeria.
In the cryptocurrency market, prices were negative as traders and investors shrugged off a signed Iran peace deal that lifted stocks, after the Federal Reserve held interest rates but made clear it is more worried about inflation than growth.
Under the new Chair, Mr Kevin Warsh, the Federal Reserve left rates unchanged at 3.5 per cent to 3.75 per cent, in line with expectations, but its updated projections pointed to higher inflation and a slower pace of future rate cuts, and some officials floated the possibility that rates may still need to rise.
Cardano (ADA) slid 4.5 per cent to trade at $0.1731, Ripple (XRP) went down by 4.2 per cent to $1.16, Ethereum (ETH) shrank by 3.5 per cent to $1,727.55, Solana (SOL) lost 3.4 per cent to sell $71.05, Dogecoin (DOGE) also fell by 3.4 per cent to $0.0843, Binance Coin (BNB) slumped by 3.1 per cent to $587.53, and Bitcoin (BTC) crashed by 2.6 per cent to $63,892.28, while TRON (TRX) gained 0.7 per cent to finish at $0.3201, with the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closing flat at $1.00 each.
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