The decision by the National Insurance Commission (NAICOM) to revise backward the recapitalisation deadline from the January 1, 2019, it had earlier fixed, to October 1, 2018, is causing ripples in the industry, some operators are threatening legal action against NAICOM.

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Operators Threaten Showdown with NAICOM over Recapitalisation Deadline

The decision by the National Insurance Commission (NAICOM) to revise backward the recapitalisation deadline from the January 1, 2019, it had earlier fixed, to October 1, 2018, is causing ripples in the industry, some operators are threatening legal action against NAICOM.

This is just as the Nigeria Insurers Association (NIA) disclosed that 5.8 million out of the 11.7 million registered vehicles plying Nigerian roads have fake insurance. At the forefront of the move to take legal action against NAICOM are chief executives of insurance firms that fall within the tier two and tier three categories. They described the backward revision of the deadline by NAICOM as a deliberate attempt to disrupt the plans and programmes they had put in place to meet the initial deadline of January1, 2019.

One of the chief executives who pleaded anonymous said the commission had warned that any insurance chief executive that speaks to the media would be heavily sanctioned. NAICOM had on July 25 announced increase in minimum capital base for insurance companies, giving January 1, 2019 as deadline for companies to upgrade their capital to the type of business they want to do.

But in announcing the change in earlier deadline, the commission in a separate circular dated August 27, 2018 stated, “In the exercise of the powers conferred on the commission under extant laws, it hereby issues this circular for the introduction of the tier-based minimum solvency capital requirements, for assessment of capital adequacy and solvency control levels of all insurance companies in Nigeria, with effect from October 1, 2018.

“This circular shall be read in conjunction with the provisions of the Insurance Act, the NAICOM Act as well as other regulations, guidelines, notices and circulars that the commission has issued or to be issued from time to time.” A CEO of one of the leading insurance firms who spoke on condition of anonymity, because NAICOM has threatened to sanction any operator that speaks with journalists said, “We have given the commission till the end of September to reverse the new date or face their legal action.” Aside the shift in deadline, operators also kicked against the use of their 2017 solvency accounts for the exercise. However, analysts at CSL Stockbrokers Limited have warned that, although the recapitalisation of the insurance industry was long overdue considering the deterioration in the capital of underwriters since the last recapitalisation exercise was carried out in February 2007, it was, however, practically impossible for underwriters to meet up with the latest deadline in view of the duration involved in raising capital amidst the current negative sentiment from investors’ in the equities market. They said, “Furthermore, we believe the recapitalisation exercise if not well managed, could potentially affect investors’ confidence and sentiment in the insurance sector, leading to a knee-jerk sell off on insurance stocks. Furthermore, given the fragile recovery of the economy, there is need to avert the negative consequences associated with the potential collapse of insurance companies who are unable to recapitalise.

“Evidently, there is the need for NAICOM to liaise with insurance companies to ensure a smooth, hitch-free recapitalisation exercise that will reposition the industry for better growth.” The Chairman Mutual Benefit Assurance Plc, Dr. Akin Ogunbiyi, recently highlighted the dangers of the tier-based capital and regulator’s action, saying it could be counter-productive, anti-growth and disruptive.
Ogunbiyi, also said the exercise might usher in a new era of de-listing of insurance stocks from the Nigerian Stock market. He also said the tier-base recapitalisation could lead to hostile takeovers of insurance firms for peanuts, especially by foreign investors with short term gains as focus. “This development in my opinion could be counter-productive, anti-growth and disruptive. The immediate implementation of the tier-based rating could lead to crisis of confidence for the entire insurance industry where only about seven of the 29 companies qualify under the new standard,” he stated. According to him, “As an industry, we need to urgently adopt a value innovation strategy to enable us provide relevant affordable products for our teeming population. “My advice is that as a priority, we must align insurance services to the unique lifestyles of our citizenry in all income groups.”