NAICOM recapitalisation: Policy somersault worsens investors’ confidence –Stakeholders

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…NAICOM to meet operators this week

By Kayode Tokede and Ayobami Ajose

As National Insurance Commission (NAICOM), cancelled its controversial recapitalisation exercise in insurance industry, key stakeholders in the sector have expressed that local and foreign investors may lose interest in the sector.

The commission last week had announced the cancellation sequel to the controversy that trailed the Tier-Based Capital increase announced by NAICOM in August this year.

Following the backward shift of the deadline and other issues, which did not go down well with the operators and shareholders, the exercise met series of opposition.

An insurance analyst who does not want his name in the print explained to Nigerian NewsDirect during the weekend that foreign investors who were interested in injecting fresh capital into struggling insurance companies on Saturday called to cancel the offer.

He noted that NAICOM did not consult with key stakeholders in its recapitalisation exercise, stating that the cancellation was least expected when most companies were facing liquidity crunch, and corporate governance challenges.

Speaking with our correspondent during the weekend, the Managing Director, AIICO Insurance Plc, Mr. Edwin Egbiti, said the cancellation came suddenly and that the commission was expected to meet operators this week.

“Operators are yet to know what the cancellation is all about,” he said.

According to him, the insurance sector is a capital-intensive business

“We cannot operate Insurance without capital because our assets should match our liabilities.”

While responding on the time frame, he said, “There is nothing wrong in recapitalization. I believe that what people tend to kick against is the time frame announced by NAICOM. NAICOM never announced to operators, go and raise capital. It is our interpretation that means go and raise capital. NAICOM directed operators to operate within their existing capital limit.

“To me, whether we like it or not, capital will still be an issue in the insurance sector. It is the methodology of how to implement it that will make everyone fall in line.

“We might escape it now, it will certainly come up again.”

He alluded that the recapitalisation exercise cancellation would in variably affect investors investing in the insurance sector.

“What makes our country look peculiar is how people outside perceived Nigeria’s insurance industry. I used the word perceived in the sense that, how can someone with ordinary motor insurance cover be looking for Tier-I capital, it is perception.

“In UK, there are companies that cover motor. These companies in UK are operating fine and they are making profit. Not everybody can operate in the energy sector.”

On his part, the former General Secretary of Independent Shareholders Association of Nigeria (ISAN) Mr. Adebayo Adeleke, said, “The cancellation will affect investors who are keen on investing in the insurance companies. Regulators are supposed to think through policies before coming into final conclusion. One of the best ways is to make sure they consult with key stakeholders.

“If you are bringing out a policy that will affect shareholders and operators, it is good for you to involve everyone via consultation so that by the time the policy comes out, people will not start to speculate. Regulators in Nigeria always think they know it all.

“Of course, NAICOM recapitalisation policy somersault will affect investor’s perception about the insurance sector. The change in deadline is another sign those in NAICOM did not carry stakeholders along.

“The truth is that Insurance companies need to recapitalize for them to be able to do business but it must involve all stakeholders.

Head, Investment Research, PanAfrican Capital, Mr. Moses Ojo, stated that recapitalisation cancellation by NAICOM would discourage investors’ interest in the sector.

He noted that NAICOM’s notices on recapitalisation exercise to operators were too short.

“I had foreseen NAICOM extending the exercise or there may be another option around it. There is no way NAICOM can introduce a policy in August and expect companies to comply on January 1, 2019.

“Mind you, we had witnessed huge numbers of foreign investors in the insurance sector in recent times. I believe that NAICOM will still come up with the policy thereafter or probably, they wanted to give them some times to build on their strategies.”

In the circular, signed by the Director (Policy and Regulation) of the commission on behalf of the Commissioner for Insurance, Alhaji Mohammed Kari, entitled “Withdrawal of circular on Tier Based Solvency Capital policy for Insurance Companies in Nigeria,” the commission stated, “Pursuant to the powers conferred by the enabling laws, the commission hereby withdraws and cancels the circular dated August 27, 2018 with reference number NAICOM/DAPCIR/14/2018 and entitled Tier Based Solvency Capital Policy for Insurance Companies in Nigeria. This withdrawal and cancellation takes immediate effect.”

Shareholders of Insurance companies had kicked over NAICOM changes of deadline for compliance with the capital increased by insurance firms from January 1, 2017 to October 1, 2018.

The policy had categorized insurance firms into tier one, tier two and tier three levels of capitalisation based on their risk bearing capacity. Oppositions to the policy were mainly from those who fall within tier three level and who have the least capital, as they were afraid of losing most of their customers to tier one and tier two firms with bigger capital.

Their opposition instigated the industry’s shareholders to seek legal redress after which the commission was compelled to put the exercise on hold until the final judgement was delivered.

At the first hearing on the matter, the Lagos High Court ordered NAICOM to stop the implementation of the proposed minimum solvency capital policy scheduled to take effect from September 14, pending the expiration of a 30-day pre-action notice.

Justice Muslim Hassan, gave the order in a class action brought by some shareholders of insurance companies in Nigeria, challenging the new minimum solvency capital policy proposed by the NAICOM.

Following the order, NAICOM refrained from the October 1 deadline for implementation of the exercise, until last weekend when it officially announced the cancellation.

NAICOM had on July 25 announced the upgrading of minimum solvency capital of insurance companies from a minimum of N2billion, N3billion for life and non-life companies, respectively, to new levels, according to the weight of risk each operating firm has decided to bear.

The commission had said in line with the tier base capital system, life underwriting firms that wanted to be on tier one should upgrade their capital to N6 billion, from the current level of N2 billion, while those that wanted to be in tier two should upgrade to N3 billion, and those on tier three should remain at N2 billion.

For non-life firms, the policy had provided that companies on tier one should provide N9 billion while those on tier two should provide N4.5 billion and those on tier three should provide N3 billion. For composite firms, it said those on tier one should provide N15 billion, tier two N7.5 billion while tier three should remain at N5 billion.