Officials of National Insurance Commission (NAICOM) interact with Shareholders Association of quoted Insurance companies with aim of discussing on Recapitalisation Roadmap and update thus far.
During the meet-up, Agboola Pius Director, Policy & Regulation NAICOM, said the New paid up share capital highlights some benefits Insurance companies will per take from, among which is Increase in Retention Capacity and Conservation of Foreign Exchange Earnings, Increase in Liquidity and Investment Funds, Hedge Againt Risks Arising from Macro Economic Environment, and the Need for Capital Restructuring.
The insurance retention capacity is the maximum amount of risk retained by an insurer per cover and the capital Size of an underwriter has significant impact on retention capacity of an insurance company among other factors while Capital structure refers to the way a firm chooses to finance its assets and investments through some combination of equity, debt or other internal funds. Where the debt securities are higher compared to equities, the company is said to be high geared and may find it difficult to raise additional funds through debt securities.
The new Paid Up Share Capital started in May, 2019 following last recapitalisation process from 2005-2007. Attempt was made in 2011/2012 to introduce a Risk Based Capital and Supervision using Solvency II Model, sensitization was done and documents were issued to the operator. While research was being made on the RBS/RBC, an idea of home grown RBC approach was born.
Hence, Tier-Based Minimum Solvency Capital (TBMSC) was introduced in the third quarter of 2018 by the Commission which was resisted by the operators, hence the circular on the TBMSC was cancelled and withdrawn.
Out of 12 samples of businesses, 30% proportion was ceded outside for 5 of them, and for 6, more than 70% was ceded outside the country. NAICOM is on Palliative measures with FIRS, SEC, CAC and CBN for the development of this course.
Other benefits includes; High Value Creation which is likely to improve corporate governance over-sight as a result of introduction of major new big owners to the industry; The higher the stakes in an enterprise, the higher the interest. As well as avenue to New Knowledge, ideas and innovations, Attracting Talented Directors, Enabling better strategic Planning, Reducing Cost of Capital With proper oversights, It reduces pursuance of self-interest of managers at the expense of shareholders.
NAICOM distributed circulars to some companies few months ago, as stated in the circulars issued, the minimum paid up share capital shall be through any or a combination of the following: Existing paid up share capital; Cash payment for new shares issued; Retained Earnings – Capitalization of undistributed profits; Payment in kind (other than by way of cash) for new shares issued such as properties, T-Bills, shares, Bonds which must be converted to cash not later than three (3) months to the deadline for recapitalization; and Share premium. These can be achieved through Merger and Acquisition.
Cash payment for new shares issued shall be deposited in an escrow account with the CBN. Deposited funds shall be released not later than 30 days after the confirmation and issuance of a new license.
The Shareholders’ fund as at the last date of recapitalization for existing Insurance/Reinsurance Companies shall not be less than the required Minimum Paid-up Share Capital.
Agboola noted that in ensuring that investors has value for their money, NAICOM also commits to develop and deploy appropriate framework for Enforcement of compulsory insurances, IT Infrastructure in the insurance sector, Risk Based Supervision, Relevant distribution model, Improvement in insurance awareness, Better corporate governance oversight, Effective Collaboration with relevant sectors, Reduction in the incidence of fake insurance and Effective monitoring and prompt payment of claims.
Feedbacks so far, 44 Companies Plans have been reviewed, Satisfied and No Objection Granted. Most of them wish to raise capital through: share premium, capitalization of retained earnings, IPO, Right issues and private placement. About six companies have indicated interest in merger/acquisition. 6 Companies plans have been reviewed and directed to resubmit. The company has been issued queries and given up till 31/10/2019 to re-submit their plans. 2 Companies’ plans are still under review. 2 Companies have not responded to circulars.
In an interview with Nornah Awoh, a shareholder in one of the companies said “Insurance is the major component of any financial system, it helps to mitigate risk. Most insurance companies are not thriving because they have few competent staffs which limits the marketing of insurance, Regulators must see insurance as business, NAICOM should as well interacts with Minority and Majority, he said.
The National Cordinator Independent Shareholders For Association of Nigeria said “NAICOM regulations is becoming too tight, 3 tiers capital increase is a lot, they should reduce resistance on what they are trying to push to be regulated”, he said.