Insurers to decide business size, submit operations profile to NAICOM this week

The board of directors of insurance companies in the country would be taking critical decisions this week on business size as they submit operational profiles to industry regulator, the National Insurance Commission (NAICOM), on their solvency capital latest Friday, September 14.

This is coming on the heels of the tier-based minimum solvency capital (TBMSC) policy recently announced by NAICOM, which is expected to commence October 1, 2018.

To this end, Muhammed Kari, the country’s commissioner for insurance has said the commission expects the insurance firms to submit resolutions taken by their board of directors, and shareholders on the class of business they have decided to undertake.

The TBMSC policy entails that an insurance company maintain a minimum capital structure of N2bn, N3bn and N6bn for Tier-3, Tier-2 and Tier-1 life insurance companies respectively, while non-life insurance firms’ minimum capital are fixed at N3bn, N4.5bn and N9bn for Tier-3, Tier-2 and Tier-1, respectively.

Current levels of operations for reinsurance companies remain in tier-3 but life, non-life and composite re-insurers who wish to level up to tier-2 must have an additional 50 percent of their respective current capital base levels. To play in tier-1, the recapitalisation regulation requires life, non-life and composite insurers to possess an additional 200 percent of their respective capital bases.

The commissioner while speaking in a televised interview monitored by business a.m. explained that compliance processes are already underway.

“In a system with so many operators you find wide ranges of response but gladly some companies have taken it in their stride. We have companies who have already applied to segregate their business. Companies that use to have a composite license, that is life and non-life have decided to separate their operations, which is the whole idea of the policy. To allow companies to concentrate on where they think they can play better,” Kari said.

According to the insurance commissioner, the input of the policy is detailed enough to ensure that all insurance companies are already advised of their position by the commission.

He said “This (the advice) is our opinion but we have asked them to call an emergency board meeting to discuss and agree with the opinion of the regulator, vis-à-vis their solvency capital.

We expect them to get back to us by the 14th of September on where they want to operate and what they want to do. This approach empowers and gives more responsibility to the board to supervise financially and otherwise of the company while we regulators concentrate on regulation.”

Kari further clarified why there are no reasons stakeholders should be concerned or be in fear as regards the deadline for capitalization.

“The concern and fear being printed around the deadline for capitalization is an un-existing argument. For the purpose of emphasis, we have not asked any company to add capital to their operations, companies are still operating on the capital of 2007, and you will agree with me that the capital of 2007 cannot be valid 11 years hence, what we have done is just to ensure that operators operate within their financial capability.”

Further explaining, Kari said, “The essence of regulation is to protect the policyholder, protect the economy and ensure that every operator operates within the bracket of the rules and regulations available to operate.”

Kari also revealed that a stress test was carried out on insurance firms in the country, adding that the results of the test determined the timing of the policy.

He, however, said it is not fair to assume that the insurance industry is weak because it comprises of many players, which are big, medium and small.

He said the findings of the test led the commission to conclude that it will not be fair on the consumers to allow all companies to give the impression that they are all on the same category of operation.

“Like the classes of risk which are different i.e. small, medium, big, so should be the players. In many of the international jurisdictions you will find insurance operators that operate one or two classes or business and specialize in them, operate one or two local government or states and specialize in them and there is no problem. So I can’t see why every operator will have to have the same outfit at the same level when they don’t have the same financial strength.”

Using the country’s banking sector as an example, Kari explained that just as they have micro finances, regional licenses, and national licenses so would the insurance companies operate. He shuddered to imagine how the sector will grow if an insurer who has the capital for small assets, is allowed to lead on oil and gas insurance or aviation insurance which is quite capital intensive, and mostly denoted in hard currency.

The commission’s recent announcement on an opening for new opportunities for licensing in tier-1 categories of life and non-life insurance was also addressed by the commissioner.

According to him, the history of most financial sectors in the country ensures that regulators make policies they feel will develop and guide the industry appropriately.

“When the NAICOM introduced the last capitalization in 2005-2007, it decided also as a policy in support of the industry to suspend the registration of new companies and refused all the licensing applications we had from local and foreign investors. We advise them to deal with local operators to develop the sector and quite a few international operators took up interest in existing companies.

Now with this categorization, we will from time to time identify which of these categories need additional capacity then call out for licensing up for application in the same category.

With the release of that categorization and an analysis we did on the industry, we believe there is more operational space in Tier-1 that is why we have advertised now that anyone who wishes to invest such opportunity is open.

We have gotten inquiries from foreign investors who are still willing to invest in existing companies and more possible to acquire new licenses. We believe that it will deepen the capacity and increase the retention we have locally.

Addressing the concern that the decision to open up licensing opportunities could outplay local industry players through an influx of foreign investors, Kari assured players that the industry would be adequately controlled.

“I don’t think we should be concerned. There is nowhere a controlled entry of foreign investment has hurt an economy.

The regulation of the sector is properly controlled by the rules and guidelines available and no foreign operator can operate out of those brackets.

So we believe, we have the wherewithal to monitor any operator coming in. but the importance of encouraging foreign investment to come in to the sector, is not only for the funds they will bring, but they will bring expertise and capacities which is lacking in the industry and they will bring some good to cooperate practice others will have to imbibe and copy which will help the regulators develop the sector further.

Speaking on the state of International Insurance Energy which was taken over about three years ago by the commission, Kari said, “It is one of the companies under regulatory watch at the moment, we have intervened and have replaced the management with an interim management board.

He explained that the commission has taken a forensic study of the company and come out with the ways the company can be salvaged.

“We believe it is a company that can be salvaged and the interim board has gone a long way into performing the duties we gave them. We expect them to submit the final reports anytime now, which we will then give approvals for the way forward

We have been able to undertake a very deep analysis of the company and are about completing the exercise and before the end of the year we will come up with a roadmap in rescuing the company.

Current investors in the company are willing to participate in turning around the company and the interim management board is also discussing with local and other foreign investors who wish to get involved in the affairs of the company.”