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Insurers’ Headache Called Recapitalisation

Regardless amplified recorded gross premium of insurance industry in Nigeria within the years, the industry is finding it excruciating to meet up with the June 30, 2020 NAICOM’s recapilisation policy deadline published on May 20 2019. This policy has forced players in the industry to gasp for breath; many are at loggerheads. This article however suggests that regulators have to expertly conduct the recapitalisation process; thereby running intimately with operators and other financial division custodian to guarantee a better, stronger risk supervision sub-sector, else players in the country might relinquish their shares to foreign investors in a bid to accede to the compulsory requirements, ODIMEGWU ONWUMERE writes

“A report by Coronation Merchant Bank Limited (CMB) has predicted that the ongoing recapitalisation in the insurance sector will reduce the current number of companies operating in the industry from 59 to about 25,” reports a business sector-based online news and business intelligence portal, BizWatchNigeria, September 9, 2019.

Nevertheless, when business forecasters reported that the gross premium of insurance industry in Nigeria rose by 22 per cent to N315bn in the third quarter of 2018, from N258bn in the preceding 2017, the industry observers were agog.

The Commissioner for Insurance, Alhaji Mohammed Kari disclosed that the gross claim’s digit climbed by 30 per cent to N143bn within the period from over the N110bn recorded within the time in 2017. By the end of the 2018 financial period, industry watchers sang ‘Hosanna in the Highest’ when the National Insurance Commission (NAICOM), Nigeria’s insurance regulatory body in March 2019, told the world that overall assets of the Nigerian insurance industry ascended to N1.263tn as of the end of the 2018 financial period.

The ovation did not end there; those who know better added in February 2019, that there was an average growth rate of 35.07 per cent in both life and non-life classes of business in the sector in the past ten years. In their computation, they revealed that there was a higher growth rate of 27.64 per cent in life business while non-life grew by 7.43 per cent in the last 10 years.

But all of this seems like water on the shell of melon, as the country’s industry players are at loggerheads with each other or gasping for breath to meet up with the June 30, 2020 new recapitalisation policy deadline by NAICOM published on May 20 2019.

Major insurers going for core-investor acquisitions

“Recapitalisation, mergers, and acquisitions are the most crucial issues confronting the Nigerian Insurance Industry (NII) in recent times. Yet information relating to these issues is rarely reported in print,” data has shown.

By July 22, 2019, stakeholders reported, saying, “Beside the top five companies that have crossed the new capital base threshold, the major insurers are going for core-investor acquisitions, rights issues and private placements… As at last weekend details of the move to bring in foreign core investors indicated that the NAICOM has approved a 39.25 percent stake for InsurResilience Investment Fund, IIF, in Royal Exchange. IIF is an insurance arm of the KFW Group owned by German government and managed by Swiss based Impact Investment Manager, Blue Orchard Finance Limited.

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“Also, Continental Reinsurance Plc, CRe, is set to convene a court-ordered meeting subject to the order of the Federal High Court, Lagos, for purposes of the minority shareholders of the company for a revised proposal by the CRe African Investments Limited for the acquisition of all the outstanding and issued shares of Cre Nigeria for a consideration of cash and shares. It will be recalled that the minority shareholders of Cre had kicked against the move initially, but the company increased the price per share offer, a move that may have secured the shareholders’ support.”

This is unlike the Nigeria’s insurance sector in 2010, that pundits said its emergence with Nigeria’s banks in other countries like Ghana, Rwanda, Gambia, Sierra Leone, Tunis, Kenya and Cameroon fostered the boost of the economies of those countries. NEM Insurance, Intercontinental Wapic, International Energy Insurance, Equity Assurance, Regency Alliance, IGI, Capital Express Life and Equity Assurance, Nicon Insurance and Continental Reinsurance Plc were among the insurance firms that opened offices outside the shores of Nigeria.

Within the period, experts had reported, “The total number of insurance companies licenced to operate in that country has increased tremendously in the last two years… The presence of Nigerian insurance companies and banks in Ghana has transformed the financial atmosphere of the gold rich country.”

More Foreign Investors Eye Acquisitions in Nigeria’s insurance

Nigerian insurers struggling to comply

According to George Etomi & Partners that claim of being Nigeria’s foremost commercial law firms, “Recapitalization is a form of corporate reorganization which involves making substantial changes to a company’s capital structure. It is one of the strategies companies use to improve their financial stability…

“Recapitalisation has proven to be a useful tool in the hands of the Nigerian government for sectoral reformation to sustain adequate economic growth and development. To meet compulsory recapitalisation requirements, companies have had to raise additional funds or gone through mergers and acquisitions.”

However, since NAICOM made known its recapitalization policy, some insurance firms such as AXA Mansard Insurance, Allianz Nigeria Insurance, SUNU Assurances, FBNInsurance, NEM Insurance, Cornerstone Insurance, LASACO Assurance, AIICO Insurance and Mutual Benefit Assurance have put forward their recapitalisation procedure to the NAICOM on time. This is not the least. The companies are infinitesimal number to the many Nigerian insurance companies begging the NAICOM to extend the compliance deadline.

Media reports have it that the companies are asking for extension of compliance benchmark between 3 and 5 years from date of issuance of notification. It is believed that the insurers worry stem on the fact that they are finding it difficult to heighten their capital and attract investors.

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According to the source, President of Independent Shareholders Solidarity Association, Mr. Sunny Nwosu, said, “Our position is that we must fight as much as possible to protect the insurance companies that give us one kobo or two kobo. All these insurance companies will be sold to the foreigners and they will tell us ‘how much is the shares quoted on the Nigerian stock exchange?’ It is a way to rob us of our investment so we must fight. So let them give us enough time to recapitalize.”

They believe that the recapitalisation had no supportive base to advance both finance and investments. But Nwosu added, “What do we need high recapitalisation in insurance for? The insurance industry has the ‘no premium, no cover’ policy. If we have a big ticket risk, we sit down together and form a consortium to attack the big ticket. Why must they say that we must go for N10 billion? If you are not prepared you will waste the money into things that may not be productive. Why must composite go for N18 billion? We don’t need it. We shareholders will see what we can do to save the insurance companies.”

A big challenge to the insurance sector

Nerves are quaking among industry players especially among underwriters who fidget on how to raise the new capital within 12 months. Analysts believe that this is a big challenge to the insurance sector given the unfavourable environment they operate on, which has been worsened by convulsed capital market, unlike 2005-2007, when the last recapitalisation was enforced. Those who sell this view say that in 2005-2007, the insurance market showed more potential.

Hence, experts believe that the recapitalisation policy is a tough decision and would be a leeway for foreign players to buy into Nigerian underwriting firms, mergers and acquisitions.

The source said, “Ongoing moves to recapitalise the insurance industry hold both apprehension of possible upheaval and the promise of a more robust risk management industry ahead. Pundits are banking on more foreign players buying into the Nigerian underwriting firms, mergers and acquisitions and, perhaps, a spurt in the bourse where equities’ prices have been flat for some years.”

Ceding shares to foreign investors

Still, in the case where shift of date is not granted, many of the insurance firms in the country may cede their shares to foreign investors in a bid to conform to the compulsory requirements. This was captured in The Punch, August 30, 2019, saying, “For an industry that is still far from realising its potential, the recapitalisation offers no easy ride.”

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Against this backdrop, a firm like Wapic Insurance Plc in September 2019, made known its plans to raise N5.9bn through a rights issue. This is contained in a report titled, “Recapitalisation: Wapic Insurance seeks N5.9bn capital raise”, published September 23, 2019.

Part of the report states, “The Nigerian Stock Exchange said in a notice on Friday that Wapic Insurance had through its stockbroker, Coronation Securities Limited, submitted an application for the approval and listing of a rights issue of 15,613,194,623 ordinary shares of 50 kobo each at 38 kobo per share.”

New minimum capital requirement for Nigerian insurance

Not the first time

This is not the first time the country was to introduce recapitalisation. According to George Etomi & Partners, “In 2003, the NAICOM, through the Insurance Act of 2003, enacted new laws for the re-classification of insurance companies and an increase in their capital base requirements.

“This was the first recapitalisation process by NAICOM and it required insurance companies to have a minimum capital base according to the type of insurance handled. For instance, life insurance – N150m, general insurance – N200m, and composite insurance and re-insurance – N350m.

“In June 2005, NAICOM introduced more stringent conditions aimed at resuscitating the industry and giving it a higher level of financial strength, which would enable it undertake bigger risks across all sectors. This exercise eventually led to the consolidation of the entire industry in 2007.”

Conversely, itemizing the 2019 regulations, NAICOM had set the deadline for submitting the recapitalisation plans at August 20, 2019, and stipulated that:

  • For life insurance companies, the minimum paid-up capital will increase to 8 billion NGN (22.2 million USD) against 2 billion NGN (5.5 million USD) currently.
  • (2) For non-life insurance companies, the minimum capital threshold is expected to reach 10 billion NGN (27.6 million USD) against 3 billion NGN (8.3 million USD) currently.
  • (3) For composite companies (life and non-life) the minimum paid-up capital will be raised to 18 billion NGN (49.7 million USD) against 5 billion NGN (13.8 million USD) currently.
  • (4) For reinsurance companies, the minimum paid-up capital will increase from 10 to 20 billion NGN (27.6 to 55.3 million USD).

There is apprehension that the Central Bank of Nigeria is also putting a novel recapitalisation programme for the banking sector, which may be a pariah for the insurance sector and attract bigger depositor attention than insurance. It is however believed by those who know better, “The National Insurance Commission will need to skillfully guide the process, working closely with operators and other financial sector regulators to ensure a bigger, stronger risk management sub-sector.”

  • Odimegwu Onwumere is a Rivers State-based Journalist. Email: apoet_25@yahoo.com

Disclaimer:

The expressions in this article are the sole responsibility of the author and do not necessarily reflect those of ooreporters.com.
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Updated: September 29, 2019 — 9:39 pm

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