UPDATED: NAICOM raises capital base for insurance companies by 200%

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The National Insurance Commission (NAICOM) has finally set timeline for the implementation of risk-based recapitalization of insurance companies commencing from January 1, 2019.

The commission also introduced a 3-tier based recapitalisation for the insurance industry. Thus, composite insurance companies that are now interested to play in the Tier 1 category are expected to increase their capitalisation from N5 billion to N15 billion, while those interested in the same tier but operating life business are required to recapitalize from N2 billion to N6 billion. Non-life insurers planning to play in this tier are expected to improve capitalisation from N3 billion to N9 billion.

The commission said it will release the transitional guideline on the new recapitalization in the insurance industry on August 3, 2018 while August 6-10, will be for the awareness session with board members and key management staff of insurance companies.

The commissioner for insurance, Mohammed Kari, disclosed this yesterday in Lagos at a press briefing. He was represented at the event by the Director, Supervision, Mr, Barineka Thompson.

In the tier two category, he said the composite insurers are required to recapitalized to N7.5 billion; non-life operators to increase their capital base to N4.5 billion, while life operators under Tier 2 category are to increase capitalisation to N3bn.

However, for insurers willing to play in the lowest tier, which is Tier 3, they are expected to maintain the current capital base of the insurance industry. To this end, non-life insurance firms in tier 3 are to maintain N3bn; Life Insurance operators, N2bn and Composite insurers N5bn.

Kari also said NAICOM has slated the issuance of notification letters on assessed capital level from August 13 to 17, 2018 and submission of board’s decision by operators to the commission not later than September 14, 2018.

He said, the commission was not withdrawing any license, but ensure that a company has adequate capital to absorb the risks it was taking.

He noted that 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 fulfill their obligations to their policyholders and shareholders because they are carrying risks above their limits,” Kari stressed.

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

”In this instance, there is no cancellation of license, but operators will be subjected to solvency control levels and no mandatory injection of fresh capital by insurers,” he pointed out.

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