NAICOM And The Recapitalisation Requirements – The Ball Is In NAICOM’s Court

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Thursday, August 09, 2018   07.08PM  /  Ekerete Ola Gam-Ikon* 

The Federal Government of Nigeria through the National Insurance Commission (NAICOM) recently announced new capital requirements for insurance companies in Nigeria using an approach novel to most insurance stakeholders and that would need continuing education. In an unprecedented move, NAICOM informed the public that it shall commence full implementation of Risk Based Supervision (RBS) and the Three-tier Solvency Margin Based (TSMB) recapitalization with effect from January 1, 2019!

What this simply means is that insurance companies will henceforth be allowed to operate only in certain areas of risks which their capital (shareholders funds/equity) permits them. So, those that desire to do ALL categories of insurance business including general, life and special risks (better known as composite) must have a minimum of N15b, equivalent of US$41.7m. For only general, N9b (US$25m) is required and for life only, it is N6b (US$16.7m).

This is Tier 1.  NAICOM went on to provide the details for the Tier 2 and Tier 3 as 50% and 30% of Tier 1 respectively while also specificying the limits of risks they can underwrite.  No insurance company shall lose its licence but their solvency margins based on approved 2017 Financial Statements will determine the next steps.

Fresh Concerns, Past Actions!
The journey to this recent pronouncement has been very engaging since the 2016 International Insurance Conference where the Honourable Minister for Finance, Kemi Adeosun hinted on the need to review the capital base of insurance companies upwards.

Participants at that conference, especially insurance companies, took it seriously and started discussing it thereafter, but got more burdened later with responding to the "new war" declared on them by NAICOM. Customers (policyholders) and shareholders were easily informed by too many executives, in response to their concerns, that they were either responding to queries from NAICOM or did not want to incur NAICOM's wrath.

The pressure from NAICOM did not abate as its helmsman, Mohammed Kari, within the last 2 years, took the message to the parley with journalists in Benin, insurance brokers in Ado Ekiti and insurance professionals in Abeokuta, sometimes describing insurance companies as financially weak and incapable of meeting their obligations to shareholders, claimants and in some cases, employees. He has been expressing strong determination to show the insurance companies the right way to conduct the BUSINESS of insurance and has not hesitated to penalize offenders.

NAICOM even engaged a leading business newspaper over an incorrect report about solvency margin of some insurance companies and demonstrated readiness to deliver and defend a financially viable industry though it knew that the agenda to announce new capital was on course. Not done, NAICOM indicated that composite licence was being abolished while it began to express the work it was doing to give the insurance industry in Nigeria a multi-year strategic plan.  From too many angles NAICOM had become more operational than regulatory and supervisory!

Where's the Ball?
As it stands today, NAICOM has put on itself a huge burden that only NAICOM can bear and unload.

First, to avoid and knowingly seek to shift the burden of revoking the licences of evidently weak insurance companies elsewhere, NAICOM  created the tiers with Tier 3 firms almost left to compete with microinsurance and takaful companies. The survival of these companies is more for NAICOM to deal with than the shareholders and managers who need education on any options that will ensure they do not end up as losers. Are they going to be given the opportunity to automatically become microinsurance companies should they desire to or be guided to Tier 1 companies that would ordinarily not look at them considering their burdens to acquire them?  Wouldn't it have been better for NAICOM to simply announce Tier 1 as the new capital requirements for all who desire to do insurance business and save all stakeholders including themselves the precious time that would now be put in the process of meeting the January 1, 2019 deadline?

Secondly, NAICOM's Insurance CEOs Committee last June launched the Nigerian Insurance Industry N300m 3-year Re-branding Project which is gaining momentum; now one wonders how this campaign will continue if the insurance companies the public should patronize are not ready and unavailable? Sometimes, you cause greater confusion when you take decisions in silos. The communication with the public through the rebranding project in this new season of Risk based 3-tier recapitalization will certainly keep customers gazing as investors ponder while shareholders regret not seizing past opportunities to offload.  NAICOM may want to guide the suspension of the rebranding campaign until after January 2019 when it is certain of the insurance companies that can operate with its licence? Or will allow the campaign continue while marketing executives of Tier 1 insurance companies go out and tell insurance brokers, consultants and customers that companies in Tier 2 and Tier 3 are incapable, insolvent and unworthy? The ball is in NAICOM's court!

Thirdly, NAICOM needs to indicate, as the drive for capital intensifies, the value it expects the insurance companies to create that will justify N15b minimum capital requirement as different from that of the N5b insurer. Are these companies going to employ experts in underwriting oil, aviation, marine and infrastructure businesses accounting for monumental capital flight till date? What are the benchmarks attainable under this new capital regime? It is easy to assume that the responsibility lies with respective insurance companies but since NAICOM became overtly involved with them, they will need guidance lest they incur the wrath of NAICOM. This is how NAICOM can also earn the respect of the investors whose capital is needed to achieve the new expectations. Will NAICOM's Boss go to the Nigerian Stock Exchange before mid-October to address the investing community as a follow up to the announcement of new capital requirements?

Fourthly, and even more urgent, is the question: What will NAICOM do with the insurance companies under its management before January 1, 2019? NAICOM does not own but has been managing, hitherto mismanaged, insurance companies namely Goldlink Insurance Plc, Investment & Allied Assurance, International Energy Insurance and recently, UNIC Insurance? This should be the first cases to be determined but can you sell what you do not own?

How about other insurance companies with bad cases of weighty loans taken in the past for recapitalization? Again, the Ball is in NAICOM's court!


Way Forward 
NAICOM may desire to fulfil an overdue transformation agenda but needs to strengthen its capacity through the engagement of truly PASSIONATE stakeholders where a matrix that reveals the linkages between the insurance industry in Nigeria and the citizens in various standings would be discussed to enable it have an integrated corporate governance model that delivers sustainable growth. It must promote inclusiveness to allow collaboration and take back its reins as regulator and supervisor ensuring that the industry players have analysed data and information to improve their top line and bottom line! Will NAICOM play the ball from its court?


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About The Author

Ekerete Ola Gam-Ikon MNIM, CPP is a consultant in the industry and can be reached by Tel: 0802-585-0344 or by e-mail:



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