New capitalisation rules set to hand over insurance sector to foreign investors

The new minimum capitalisation policy for insurance companies set by the the National Insurance Commission (NAICOM), and the lackadaisical attitude of indigenous investors to insurance stocks, may have paved the way for the take over of the insurance sector by foreign investors.

Since the new capitalistation requirements were unveiled by NAICOM, foreign investors from Europe, America and South Africa are directing their reserved funds into the Nigerian insurance market to take advantage of the new capital regime and indigenous operators’ inability to raise funds from the Nigerian stock market to extend their business portfolios.
NAICOM, had announced on May 20, 2019, a new capital regime for all categories of insurance companies in Nigeria.

In a circular by Pius Agboola, NAICOM’s director, policy and regulation directorate, on behalf of the commissioner for Insurance, Mohammed Kari, the commission had said the new capital regime would take effect from June 30, 2020 for existing insurance and reinsurance firms, but with immediate effect for new firms entering into the business.
Under the new capital regime, life insurance underwriting firms, which currently have a minimum paid up share capital of N2 billion, will compulsorily shore up their capital to N8 billion, representing a 200 percent increase.

Insurance firms underwriting general business will by the new paid-up share capital regime, shore up their capital from N3 billion to N10 billion.

Composite insurance firms, that is, firms underwriting both life and general business will have to raise their capital from the current N5 billion level to N18 billion.

Reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion.

The new guidelines are coming after NAICOM’s failure in its initial bid to shore up the minimum operating capital of insurance firms through its Tier Base Minimum Solvency Capital.

The scramble for Nigerian insurance sector by foreign investors, it was learnt, actually started two years ago when NAICOM adopted the Risk-Based Supervision model from the European market.

The regulator had hinted the operators that the new model would require injection of fresh capital into their business.

This, according to the commission, was to give the Nigerian insurance market a global outlook and strengthen insurance firms to be in a position to underwrite big ticket businesses.

In their bid to meet the commission’s demands, the insurance operators turned to the foreign investment markets in search of investors and technical partners to inject funds and technical expertise into their operations.

This has seen global players like AXA, Sanlam, AFIG Funds, and Allianz, among others, acquiring stakes in insurance firms in Nigeria.

The foreign investors have since 2018 acquired stakes in NEM Insurance and Ensure Insurance, among others.

The latest is the acquisition of 39.25 per cent stake in Royal Exchange General Insurance by the InsuResilience Investment Fund (IIF).
It was also gathered that Royal Exchange Life Insurance, Sovereign Trust Insurance, Niger Insurance are currently shopping for foreign investors in a bid to meet the regulator’s demand.

The IIF was established by the German Development Bank (KfW) and managed by Swiss-based Impact Investment Manager, BlueOrchard Finance Investment Limited (BlueOrchard).

Its investment in the Nigerian insurance sector has resulted in the injection of N3.6 billion capital into the Royal Exchange General Insurance (REGIC) .

Benjamin Agili, ,the managing director of Royal Exchange described the investment as a welcome development.
He said: “As one of the leading non-life insurance companies operating in the insurance market in the country and having a strong presence in the agric-insurance space through its partnership with the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) and some state governments, this investment by the KfW is expected to have a huge impact on the company’s presence in the agric-insurance space to enable REGIC to increase its presence even further.”

Prior to this acquisition, a leading African Private Equity Fund Manager, Advanced Finance and Investment Group (AFIG Funds) had acquired 29.9 percent stake in NEM Insurance Plc, just as Allianz had in July last year acquired Ensure Insurance, formerly Union Assurance.

Other firms which have witnessed ownership dilution through foreign investments include NSIA, which acquired 96.15 per cent in ADIC Insurance, a former subsidiary of Diamond Bank Plc; Mutual & Federal Insurance Company, South Africa, which acquired 70 percent of Oceanic Insurance Company Limited, formerly owned by Oceanic Bank Plc.

Old Mutual Nigeria Services Company (Old Mutual Nigeria) also acquired 70 percent of Oceanic Life Assurance Limited, a subsidiary of Oceanic Bank.