02, 2021 / 01:20 PM / by CSL Research / Header Image Credit: iStock
The Nigeria insurance sector appears to be on the last lap of the protracted industry recapitalization exercise that has been on for the past three years. The second phase deadline expires on the 3o September 2021. The onset of the Covid-19 pandemic, which created difficulties for players, occasioned the segmentation of the recapitalization efforts into phases, as they struggled to raise the required financing amid the disruption in the global economy. According to a recent report by Thisdaylive, the exercise is needed to help mitigate concerns around capital flight as crucial sectors like the oil and gas, aviation, and key tech companies insure the majority of their risks abroad amid the low local underwriting capacity.
The recapitalization exercise in 2007 raised minimum capital to current levels and since then, NAICOM has been coming up with policies to ensure seamless insurance delivery, with little success. One of such plans is the Tier Based system, which should ensure that players can only underwrite risks for which they have an attendant financial muscle. The ongoing exercise, however, has seen a series of acquisitions. For Instance, Verod Capital had acquired Law Union and Rock Insurance Plc in 2020.
As of Q1 2021 and based on the available financials, of the twenty-two (22) listed insurance companies, sixteen (16) are yet to meet the required threshold (Share Capital + Share Premium + Retained Earnings) as it pertains to their line of business. We believe the industry would be adequately positioned to support the Nigerian economy by contributing to economic growth by the deadline. The insurance sub-sector contributes 12.1% of the financial services sub-sector GDP, which contributes 3.2% of Nigeria's Gross Domestic Product (GDP). We note that beyond improving underwriting capacity in the industry, the recapitalization exercise would eliminate operationally weak firms that have been a drag to the entire industry over time.
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