Insurance firms intensify recapitalisation amid reform bill passage

While waiting for the 2014 Nigerian Insurance Industry Reform Bill to complete the legislative process at the National Assembly, players in the sector have commenced the recapitalisation process.

In December, the Senate passed the bill following the adoption of the report of the Committee on Banking, Insurance, and Other Financial Institutions at plenary.

The bill sought to consolidate various existing legislations regulating the conduct of insurance businesses in Nigeria. The legislations incorporated include the Insurance Act, Cap. I17, Laws of the Federation of Nigeria, 2004; the Marine Insurance Act, Cap. M3, Laws of the Federation of Nigeria, 2004; the Motor Vehicles (Third Party Insurance) Act, Cap. M22, Laws of the Federation of Nigeria, 2004; the National Insurance Corporation of Nigeria Act, Cap. N54, Laws of the Federation of Nigeria, 2004; the Nigeria Reinsurance Corporation Act, Cap. N131, Laws of the Federation of Nigeria, 2004; to provide for a comprehensive legal and regulatory framework for insurance business in Nigeria; and for related matters.

While reading the committee’s report, the chairman of the body, Adetokunbo Abiru, said another major objective of the bill was to enable Nigeria to have a better future for itself and the need for a robust legal and regulatory framework that would see the insurance sector contributing positively to the principal objective of financial assistance practices.

He said to make Nigeria, Africa’s financial hub and one of the 20 largest economies in the world, there was a need to involve effective risk-based supervision in the regulatory system. He noted that the existing rule-based supervision, enabled by the current laws in the insurance sector, had become obsolete.

Abiru said, “All these legislations have surpassed a two-decade mark, and they lack provisions that can adequately address contemporary challenges and support growth and innovation within the industry.

These have also hampered the industry’s ability to successfully compete on a global level.”

The red chamber approved N25bn for non-life assurance, N15bn for life assurance, and N35bn for reinsurance firms. Other highlights of the bills include risk-based supervision, which allows for the consolidation of the risk-based approach to supervision, enabling regulators to effectively monitor and manage risks within the industry.

The bill also strengthens consumer protection, thus safeguarding the interests of policyholders and promoting transparency and fairness in insurance practices and an enhanced regulatory framework, among other things.

The National Insurance Commission hailed the passage of the new Insurance Consolidated Bill by the Senate and is optimistic that the legislation will unlock the growth, prosperity, and potential of the insurance sector.

NAICOM stated, “The commission believes that the bill is a game changer for Nigeria’s insurance industry and is going to have a high positive impact on the contribution of the insurance sector to the country’s GDP and economy as a whole. By consolidating existing insurance laws, the new legislation marks a new era in the ongoing efforts to strengthen Nigeria’s insurance industry. The bill provides a comprehensive framework for regulating all types of insurance businesses and ensuring a more robust and effective industry.

“The passage of the bill marks a significant triumph for Nigeria’s insurance industry, tackling the long-standing challenge of low insurance penetration in the country. The new legislation addresses the industry’s need for a more robust legal and regulatory framework, enabling it to compete favourably in the African insurance market and globally.”

Even before the Senate passed the insurance bill, Prestige Assurance revealed it was already shopping to meet the increased capital threshold.

Speaking at the last Annual General Meeting, the chairman of the company, Mrs. Funmi Oyetunji, said the firm had already mapped out its strategy.

“What are our plans? We are already discussing it, and if we are looking for N18bn or N13bn, it is to go to private placements, people like IFC. We will also be looking at rights issues. So, we are coming back to you with a public offer to issue fresh shares. We are looking at all of these and discussing and consulting with NAICOM and the industry,” she said.

Mutual Benefits Assurance Group has also revealed its preparedness for the recapitalisation exercise.

Group chairman Akin Ogunbiyi, at the company’s 29th Annual Thanksgiving held in Lagos, said the group has surpassed the new capital requirement expected in the industry.

“We are well-positioned to meet any new demands. But I also believe that insurance companies, unlike banks, do not need to rely solely on capital for growth. The industry needs more creativity and innovative solutions to thrive,” Ogunbiyi said.

Concerned about the possibility of a shrinking sector in terms of players, Ogunbiyi said, “There is a real concern that if capitalisation continues at the current pace, we might see a consolidation of the industry, with only a few companies surviving.

“However, we remain committed to Mutual Benefit’s growth. We want to maintain our position as a strong, independent player in the market, providing value to our customers and stakeholders. Investors have been wary due to the instability in the country, but we continue to push forward.”

He added, “At Mutual Benefit, we prefer to stand on our own and maintain our brand. We have a strong company culture, and we want to keep it that way. Over the years, we have had foreign companies approach us for acquisitions, but we have turned them down. We value our independence and strategic direction, and we want to continue building our brand without mixing it with others.”

In a chat with The PUNCH, the Managing Director of Meristem Stockbrokers Limited, Saheed Bashir, said, “A lot of the insurance firms are recapitalising. Even though it has not been made official, a lot of them have prepared for that policy to take effect. When they get those funds, they have to channel it to productive use as well. With tax reforms and a lot going on in the fiscal space. You see that since the equity market opened this year, we have seen a lot of spikes in their prices. Sentiments you would say because we are yet to see numbers, but sentiments are driving investors in that space.

“We expect that as the economy grows, insurance companies will as well. Because what insurance companies are meant to do is to support business activities and their economy, they will get their share of the largesse. I think I’m very positive in terms of growth for the insurance industry in 2025 and beyond.

Meristem Securities, in its 2025 outlook report, also maintained “a positive outlook for the sector in 2025, hinged on expansion across business segments. Particularly, life insurance is poised for remarkable growth as targeted policy reforms should support developments in the health sector. Also, the elevated fixed-income yield environment during the year should lower provisioning for life and annuity funds and buffer investment income. However, increased underwriting and operating costs resulting from the high inflationary environment may drag on the profitability for the insurers.”

During a recent press briefing, the President/Chairman of the Governing Board of the Nigerian Council of Registered Insurance Brokers, Bàbàtunde Oguntade, said the target of the body was to deepen awareness of insurance.

Oguntade said, “The insuring public got started by some incidents in January and February last year, the explosions in Ibadan. We discovered that only properties were insured and two of them were insured through one of our past presidents. Some people didn’t know that you can insure assets worth N2m and below. They thought insurance was for the rich.

“Our outlook is to help to further the growth of insurance awareness, that people get the right advice, and we want to be more involved in people’s businesses than just talking about insurance. If I talk to you about your business, I will discover the risks that you are exposed to. Then I can ask what your options are if certain risks happen to you. If you tell me that you are going to borrow, I can pitch insurance, which is a fraction of the interest you are paying on the funds you borrowed. The most expensive form of insurance is on the motor, which is five per cent of value, and you find that the interest element on funds now is so much that it is easier for people to know that insurance is their friend.”

Oguntade projected further collaboration with government agencies.

“This year, we shall go further, collaborate with government agencies, and ensure that this budget, we follow it, and at least 50 per cent, if not 75 per cent, gets into the insurance industry,” he affirmed.