NAICOM sets new capital base for underwriters


The National Insurance Commission (NAICOM) has adopted a Tier-Based Minimum Solvency Capital (TBMSC) model that allows small underwriting firms to operate alongside the bigger ones in the market.
The new model which graduate operators according to their capabilities was adopted by the commission having taken into consideration the economic situation and the different level of financial capabilities of insurance companies in the country.
The new approach which becomes effective January 1, 2019 has been communicated to chief executives of insurance underwriting companies at an emergency meeting of the Insurance Committee in Lagos on Wednesday.
The TBMSC structure is a complimentary measure to the ongoing implementation of the Risk-Based Supervision (RBS) programme currently being implemented in the insurance market.
A similar idea was in 1997 canvassed by the Nigerian Insurers Association (NIA) under the chairmanship of Bolaji Banjo, the then NIA Chairman in the wake of the crisis that trailed that year re-capitalisation exercise that pit the insurers’ association against the commission.
Under the newly adopted model which has now separated the men from the boys, the market is graduated into three cadres and the players in the top bracket regarded as Tier-One are expected to shore up their capitalization to N15 billion representing 200 percent increase if they are to operate the composite form of business.
Such insurers will be allowed to handle individual life, health insurance, miscellaneous insurance and annuity for life and Non-Life comprising fire. Motor, general accident, Engineering, agriculture, miscellaneous insurance, Marine, Bonds Credit Guarantees & Suretyship, Oil and Gas (oil related projects, exploration and production) and Aviation.
Life insurance in this cadre has to jerk up its capitalisation from the current N2 to N6 billion and the Non-Life in this category will move from the current N3 billion to N9 billion.
The Director Supervision, NAICOM, Barineka Thompson, at a briefing after the meeting of the insurance committee said that composite companies in Tier 2 cadre are to look for N7.5 billion to operate within this bracket.
Such companies will under its Life branch underwrite individual life, health insurance, miscellaneous insurance and Group Life insurance.
The Non-Life insurance under the Tier 2 covers Fire, motor, general accident, Engineering, agriculture and miscellaneous, Marine, Bonds Credit Guarantee and Suretyship.
A life company that decided to play in the Tier 2 cadre is to grow its capitalisation to N3 billion while a Non-Life Underwriter that want to play in this cadre is to look for N4.5 billion.
The last group is the Tier 3 which currently is the capitalization in the industry.
Companies that lack the financial capability to grow their capitalization to the either of Tier 1 or Tier 2 are expected to continue play in this cadre according to Barineka Thompson who noted that the failure of some insurers to honour contractual commitments to the insured and other stakeholders as well as the need to save from extinction, the market which has suffered recession as well as the 2008 global financial crisis
This new model Specifies capital requirement for each Tier Levels, based on Risk classification for each Tiers but with no mandatory injection of fresh capital fund by insurers;
Also, the new model will witness no cancellation of licence of any operator but will subject them to solvency control levels;
Barineka also noted that the new approach to recapitalization specifies intervention levels; and specific actions to be taken by the
Commission and Operators on various level of impairment of the TBMSC; and also open up licensing window to interested investors at higher