The glimpse of insurance recapitalization

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By Shorunke Tunde

The National Insurance Commission (NAICOM) had in a circular issued on Monday, May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; General Business from N3 billion to N10 billion; Composite Business from N5 billion to N18 billion; and Reinsurance companies from N10 billion to N20 billion.

In accordance to the Commission, the minimum paid-up share capital requirement would take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than 30th June 2020.

However, operators are gradually settling down, with a number of the companies becoming clearer with funding sources. Especially the foreign insurers which has almost cleared their tables on the funding sources, the mid to large size local insurers were tidying up plans with strategic investors and well as funds from assets restructuring.

NewsDirect investigations identifies that top size insurers may recapitalize and may also merge with  small companies, which analysts is of the belief that it would bring a lot of stability in the market without many casualties from the exercise. And the major important point here is that several  investors are showing interest in the insurance industry based on the perceived potential for growth given the low level of insurance penetration in the country.

Estimated of N200 billion is expected into the Nigerian insurance industry after the ongoing recapitalization by underwriters, Insurance penetration to the GDP in Nigeria is put at 0.4 percent in a population of over 180 million people, underscoring the untapped opportunities open to investment in the sector is hopeful to emerge stronger, contribute reasonably to the economy consecutively increasing their capacity.

Analyst stating that recapitalization plan has it is scheduled will have enough resources to attract quality manpower, acquire necessary skills to underwriter, high risks capacity, increase retention in the local market, and take advantage of the untapped resources.

Managing director/CEO, Linkage Assurance Plc, Daniel Braie said firstly,  the Nigerian investment climate is still one of the most attractive in the world in terms of investment returns so that in itself is an impetus for new investors.

Braie further clarifies that “The full potential of the industry is yet to be realized when you consider that the insurance penetration ratio is still below one percent, look at it from the point of our population demographics, the insurance industry is a huge market waiting to be unlocked. This should be an attraction for any investor to put in money. In addition, compulsory insurances if adequately enforced will also offer opportunities for the insurance industry to grow and contribute to the overall growth of the economy.”

Speaking on Insurance risk taking, he said “The lack of local capacity for certain classes of risks is still a challenge therefore with an increase in the capital base of insurers, it is expected that it will make the insurance companies stronger to be able to retain more of the businesses, reduce businesses placed abroad whereas the future of the insurance industry in Nigeria is very bright given the growth opportunities highlighted earlier especially in the retail space.

Managing director/CEO,  Law Union, and Rock Insurance Plc, Mayowa Adeduro said  the attractions to any informed investor to put money into insurance business are first the potential of the industry and the population of Nigeria is over 200 million people with over 70 percent below 50 years age. The industry is about N400 billion GPI in 2018 but has the potential to double that in 5 years. The infrastructure deficit means there will be increasing spending on capital projects that attracts insurance.”

Braio and  Adeduro also noted that with the recapitalization plan, we are capable of generating up to N1 trillion gross premium in our six cinsurance. “The local content law, the carbotage law, the pension reform Act and other state enactments like the Lagos State Safety Control Law will all creates an opportunity for insurance to thrive.”

In accordance to the recapitalization reform, Guinea Insurance Plc at its 61st yearly general meeting held in Uyo, Akwa Ibom State, received shareholders’ nod to increase its capital base to N12 billion.

Consequential to the approval, the underwriting company is believe to increase its Authorised Share Capital from N4billion to N12 billion by the addition of N8billion divided into 16 billion ordinary shares of 50 kobo each.

Chairman Guinea Insurance Plc, Godson Ugochukwu, said penetrating insights and sustainable fair shakes will boost get-up-and-go capital structure reorganization action plans.

He said, options available to us are either to approach the capital market by way of a public offering, private placements, rights issue, book building process or other methods, inject funds into the company or consider the possibility of a merger with another company operating in the general insurance business portfolio.

“In any case, the board had engaged the services of professional parties and advisors to provide matter-of-fact counsel that will engender accuracy and timely decision making especially, as we are materially mindful of the stipulated time frame given by the regulator”, he said.

Regional Chief Executive Officer, Allianz Africa, Mr. Coenraad Vrolijk said in an interview “I just want to reiterate and confirm that Allianz will obviously make sure that Allianz in Nigeria conforms to local regulation. We will conform to the regulator’s N18 billion recapitalisation mark for composite companies. The plan is that Allianz will add the money. We don’t want the shareholders. We have 99.6 percent ownership of Allianz in Nigeria. We will add the money I think we will be somewhere over N18 billion. As you know, these things depend on exchange rate. We will add the money before the account closes for 2019.”

Anchor Insurance made known that they don’t have a problem with recapitalizing, and would complete their requirement base before June 2020. And further clarified that “the state government is there for us so they will just add up the balance so we have no shaking concerning recapitalization.”

WAPIC Insurance Chairman, Mr. Aigboj Aig-Imoukhuede said “he knew how to get the required capital without depending on the existing shareholders alone. Also with current asset base of N30.4 billion, the company seems not to be bothered as the deadline draws closer.”

On the same note, Custodian and Allied Insurance is one of the firms that may beat the deadline. With its current asset base of N98.1 billion, the company said it was well positioned to weather the storm as the recapitalization deadline approaches.

Other firms such as Leadway Insurance, FBNinsurance, Old Mutual both life and General Insurance, Royal Exchange, AIICO Insurance, INSIA Insurance, NEM among others, are not among those looking at the faces of their shareholders for fund raising. Universal Insurance is among those looking at the hands of its shareholders for support to beat the deadline, but Consolidated Hallmark Insurance Plc has gotten approval of its shareholders.

But there are firms like Niger Insurance, which have very strong assets base but is currently considering capital raising and they pose to be very optimistic that the company would continue to meet the expectations of investors.