The National Insurance Commission (NAICOM) says insurance companies cannot take loans to meet the newly introduced capitalisation requirement.
Speaking at a seminar, Pius Agboola, NIACOM’s director of policy said the recapitalisation exercise will change the negative image of the sector and increase its contributions to the country’s gross domestic product (GDP).
“NAICOM wants to ensure that stronger underwriting firms emerge in the country,” he said.
“Viable and solid companies that are able to support the government in its policies and which are able to create employment and add other value to the economy must emerge in the insurance sector.
“For the avoidance of doubt, and for an instrument to be treated as paid-up share capital, the following criteria among others must be satisfied,” he said.
“It must represent the most subordinate claim in liquidation of the insurer/ reinsurer; The investor is entitled to a claim, only on the residual assets that is proportional with its share of issued capital, after all, senior claims have been paid in liquidation (such that it has an unlimited and variable claim, not fixed or capped claim);
“The principal is perpetual and never repaid outside of liquidation; Distributions are paid out of distributable profit or retained earnings; There are no circumstances under which the distributions are obligatory; It must not be a loan on the company or margin facility whatsoever.”
NAICOM had directed insurance companies in the life insurance business to raise their minimum required capital from N2 billion to N8 billion; those into general business underwriting from their current N3 billion minimum capital to N10 billion; composite underwriting firms from the present N5 billion to N18 billion, while reinsurance firms were directed to upgrade theirs from the current N10 billion to N20 billion.
The commission said the recapitalisation would be effective from June 30, 2020, while it would be effective from the commencement date of the circular for new applications.
Insurance companies have been given the option of merger and acquisition to be able to meet the requirement.