Written by Sarah NEGEDU

NAICOM to unveil fresh guideline for recapitalization

The National Insurance Commission, NAICOM, will this week unveil the transitional guideline on the new recapitalization in the insurance industry.

NAICOM had last week announced a risk-based recapitalisation of the insurance sector with the introduction of 3-tier based recapitalisation for insurance companies willing to get licences to underwrite all risks in the country.

The new arrangement, which begins implementation from January 1, 2019 will require composite insurance companies (life and non-life underwriters) interested in the Tier 1 category to increase their capital base from N5billion to N15billion.

NAICOM also raised the minimum capital requirement of life insurance companies that want to underwrite all forms of life insurance from N2billion to N6billion, while non-life insurers planning to play in this tier are expected to improve capitalisation from N3billion to N9billion.

Speaking to newsmen after a presentation by the risk-based solvency implementation team of the commission, the Commissioner for insurance, Mohammed Kari said with the tier two category, the composite insurers are required to recapitalized to N7.5billion, non-life operators to increase their capital base to N4.5billion, while life operators under Tier 2 category are to increase capitalisation to N3billion.

Kari who was represented at the event by the Director, Supervision, Barineka Thompson, further disclosed that insurers willing to play in the Tier 3 are to maintain the current capital base of the insurance industry which is N3billion for non-life insurance firms and N2billion for life insurance operators and N5billion for composite insurers.

He explained that insurance companies operating with the old capital requirements would not be forced to recapitalise but would be restricted to underwrite only certain business.

“There will be no mandatory injection of fresh capital funds by insurers; no cancellation of licence of any operator is anticipated, but subject to solvency control levels.”

He noted that the review of the capital base did not extend to reinsurance companies, as the tier-based minimum solvency capital structure is a complimentary measure to the ongoing implementation of the risk-based supervision programme.

He said the recapitalization became desirable as inflation and interest rates have increased in the last 10 years, while insurers were still operating with the same capitalization of 2007.

“Interest rate has gone from single to double digit; interest rate has increased over time and with many macroeconomic and institutional factors on the upward trends, while the industry still maintains the same capitalisation in the last 10 years.

“So, it is desirable for operators to now choose which tier they want to operate in. Some companies are finding it difficult to fulfil their obligations to their policyholders and shareholders because they are carrying risks above their limits.”

NAICOM says the initiative will enhance soundness and profitability of insurers through optimal capitalization, adding that the introduction of proportionate capital that supports the nature, scale and complexity of the business conducted by insurers is necessary.

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