Recapitalization: Types, Sizes and Shapes of What to Expect

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Monday, October 05, 2020  / 11:30 AM  /By Ekerete Ola Gam-Ikon  / Header Image Credit: Wikipedia

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As you might know, insurance companies in Nigeria are in a recapitalization race with two finish lines, the first being 31st December 2020 and the second, 30th September 2021, announced by the regulator, National Insurance Commission (NAICOM) last June. Recall that the Commission had in 2019 announced that Life, General, Composite and Reinsurance companies should have N8b, N10b, N18b and N20b respectively as minimum capital to operate in Nigeria.


Months ago, the Commission further announced that it was embarking on Capital Verification exercise to ascertain the current level of capital in all licensed insurers amongst other activities towards the determination of the first finish line.


Many industry operators and analysts have been expecting heightened mergers and acquisitions even as NAICOM is on course to license new insurance and reinsurance companies. These are besides changes in the leadership of some companies with a view to repositioning them for the post-recapitalization era.


Changes in Types?

Today, there are Five (5) types of operating licences issued for insurance companies by NAICOM namely Life, General, Reinsurance, Microinsurance and Takaful while Composite merely describes the category of those companies that have both Life and General licences. Nigeria currently has Sixty-three (63) re/insurance companies comprised of Thirteen (13) Composite, Twenty-seven (27) General, Thirteen (13) Life, Two (2) Reinsurance, and Four (4) each of Microinsurance and Takaful companies.


Interestingly, we have mostly focused on the Fifty-five (55) companies that are now required to meet new minimum capital requirements thus not adequately informing our citizens and residents of the types of insurance licensees available to provide tailored products and services to them.


The point of contact known to the public needs to be recreated,  improved and updated for effective engagements that will accordingly boost the insurance experiences of all stakeholders.


Sometimes, it is quite overwhelming for the would-be policyholders to hear, know, understand and decide to buy insurance in a meeting or two, except the person that had been previously aware of insurance.


The Sizes Are Not Small

Compared with other countries, the minimum capital that re/insurance companies in Nigeria are required to meet stand as the highest in Africa though in terms of insurance penetration the country falls behind South Africa, Egypt, Morocco, Kenya, Tunisia and Namibia.


If the current number of insurance companies required to meet the new minimum capital fulfilled the expectations of the regulator, the following scenario will play out:


  • 13 Composite insurers at N18b each would have a total of N234b; 
  • 27 General insurers at N10b each would have a total of N270b;
  • 13 Life insurers at N8b each would have a total of N104b; and
  • 2 Reinsurers at N20b each would have a total of N40b.


The total minimum capital would then have been N648b for the entire industry as against the probable total of N184b, if all the affected insurers and reinsurers have met the present minimum capital of N10b, N5b, N3b and N2b for Reinsurance, Composite, General and Life companies respectively.


When, however, by end of December this year, we close with Sixty-five (65) percent of the overall sum of N648b, discussions will switch to what Gross Written Premium (GWP) can be achieved with such capital, based on the total GWP of N490b recorded by the entire industry in 2019.


If we go by the argument that the minimum capital base should deliver at least two times of the amount as GWP, we can expect the insurance industry in Nigeria to hit the N1trillion GWP mark before 2022.


This is not being overtly optimistic when one considers the focus of NAICOM on market development, which is forcing action on product innovation, communication and hopefully, on prompt claims settlement.


Shaping the Shapes of New Insurers

The primary concern for all the companies in this race towards recapitalization deadline is to remain in the business while a handful are seeking to consolidate if the opportunity emerges.


In particular, the Life only companies required to do N8b, will want to keep their space by all means because the segment has been growing in the last couple of years due the combination of compliance calls by National Pension Commission (PENCOM) and the premium rate announced by NAICOM in 2018. Indeed, with 3 out of 4 applications for licences processed by the regulator being Life, one can appreciate the strong desire of the incumbent companies to retain theirs.


We should expect more Life Insurance companies in the near future, though General Insurance will continue to lead if insurers licensed to operate in this category become more innovative and invest more in customer engagement management leveraging digital solutions. 


Understandably, General Insurers that can afford it might be seeking to acquire interests in Life companies but I have asked: i) When will over 8m registered vehicles be genuinely insured and captured on the Nigerian Insurance Industry Database managed by Nigeria Insurers Association (NIA)? ii) When will public buildings in Nigeria be covered in line with the provisions of the law stipulated in the Insurance Act 2003?


Giving attention to Life segment will certainly distract any General Insurer from the opportunities that still remain untapped for it beyond the compulsory classes of insurance.


Also, we have read about Composite Insurers that are ready to drop either Life to enable them go on with General or vice versa.


Recall that this was the situation of a few General Insurers today that had to take such path to survive during the last recapitalization exercise of 2007/2008.


It will therefore be surprisingly impressive to have a General Insurance company that rather decides to invest in Branding and Technology to gain more market share in its segment than go for the Life licence, which requires much more capital outlay.


Given our youthful population, we could be seeing an insurer that clearly embraces the young ones across the strata - leadership, management, administration, operations and customer engagement. One of the drawbacks of the current efforts at repositioning the insurance industry in Nigeria is the absence of young executives in the frontline of the discussions and engagements.


The abilities of the old brigade to understand and adapt to the lifestyle of our youngsters, whose gadgets are more cherished than the assets we are used to insuring, will be tested and the first insurer to launch itself in that direction will win.


Same with the huge informal sector that have seemingly trusted only themselves through alternative risk management and insurance options like esusu, cooperatives and affinity groupings. Engaging to earn their trust remains a challenging opportunity for our traditional insurers.


Specifically, the growing number of farmers in our bustling agricultural sector expect insurance companies to seek their patronage through collaborative approaches and insurers, hitherto unwilling to adapt Corporate Social Responsibility (CSR) for their market development will be forced to ponder on this. 


What We Are Expecting 

Are we likely to have Nigeria's first digital insurance company? Possible, however, the regulator, NAICOM has to do more to collaborate with other regulators like Central Bank of Nigeria (CBN) and National Communication Commission (NCC).


Considering that banks are now making earnings from providing mobile and online services, the insurance industry in Nigeria needs to re-imagine how it can also achieve this by enabling policyholders to use certain self-help services.


While many may still argue that insurance business is anchored on person-to-person relationship and reach, many customers are enjoying the trust of the system that responds faster and with less stress.


Insurance offers our population much more benefits but needs to be open and accessible, available and affordable even as we look forward to the first and final deadlines for recapitalization.


About The Author

Ekerete Olawoye Gam-Ikon, MNIM, CPP, is a management consultant with a specialization in Strategy and Insurance. You can contact him via e:mail and mobile +234-806-648-1111

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