Panic grips insurers over NAICOM capital verification

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There is panic in the insurance industry over the upcoming verification of insurance companies’ capital by the regulator, the National Insurance Commission (NAICOM), The Nation has learnt.

While many insurers are panicky, a few others are confident that their books are clean.

It was learnt that inspectors from NAICOM’s Lagos office have in the past few days commenced offsite verification on the insurance companies. The offsite verification is the preliminary examination of the yearly reports by the supervisors based on their face values.

A source in the Commission, who spoke with our correspondent on the condition of anonymity, said some insurers were making moves to shore up their capital by injecting funds by any means possible, forgetting that any funds injected have entry date.

The source said the Commission would detect any foul move through Biometric Verification Number (BVN) with the help of Central Bank of Nigeria (CBN).

Capital verification, one of NAICOM’S regulatory priorities for the year, will entail verification of insurance firms’ assets and liabilities with the cost of the exercise to be borne by the companies.

In preparation for the exercise,  Commissioner for Insurance, Mohammed Kari,  had in the 2017 agenda, advised Boards to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements for the year ending 31 December, 2016.

He said professionals that participate in the financial reporting supply chain are expected to ensure they do their jobs professionally in the valuation of assets and liabilities, as well as in the issuance of opinion on financial reports. They are to discharge their duties creditably in accordance with relevant laws and professional standards.

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Meanwhile, the source said the exercise, when concluded, might force many of the companies operating below capital base of N3 billion for Life insurance business, N5 billion for General business and N10 billion for composite business to recapitalise, merge or seek fresh investors for acquisition as witnessed in the sector in 2007.

He said this time, the recapitalisation would be structured through the implementation of Risk-Based Supervision (RBS) framework, which would categorise underwriting firms into tiers of risk businesses to underwrite, he added.

He stressed that companies that fail to shore up their capital appropriately risk losing their operating licences.

He said: “With the new RBS supervision template, insurance companies will no longer operate a uniform capital base, but their capital would be determined by the risk they undertake.

“Insurance companies’ capital base will now be dependent on the value or specific area of risks they carry as a business, different from what obtains currently where all the companies have the same statutory level of capital either as general or life business.”

Meanwhile, some companies have started restructuring to meet up with the demand of the regulator. For instance, International Energy Insurance (IEI) Plc is set to recapitalise by raising N13 billion from the market.

It Interim chairman, Mohammad Ahmad, said the development was as a result of the approval given the Interim Board to recapitalise the company for growth and competitiveness. According to him, the expected new capital when injected would enhance the firm’s working capital, improve IT infrastructure, meet solvency requirement as well as boost investment opportunities.

Last month, Standard Alliance Insurance Plc announced that it has  merged with its sister company, Standard Life Assurance. The Managing Director, Bode Akinboye, said the merger would make the underwriting life and non-life insurance businesses to become one big company.

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South Africa’s Liberty Holdings is also set to acquire a 75 per cent stake in a Nigerian long-term insurer, UNIC Insurance Plc for 160 million Rands (about $12 million).

The company sought approval from the Nigerian Stock Echange (NSE) for restructuring. Liberty has been expanding beyond its home base to other parts of Africa where demand is rising from a growing middle class. Part of Liberty’s strategy is to grow its presence in West Africa through the long-term insurance business and entering the asset management business.

Liberty Chief Executive Thabo Dloti said it was pursuing its strategy of expanding in the region, noting that they see Nigeria as a market of the future.

It may be having difficulties now, but everything indicates to us that in the long term, Nigeria is going to be a big contributor of growth if you are doing business in Sub-Saharan Africa, he said.

Chairman, Sub-Committee on Publicity and Communication, Oye Hassan-Odukale, while briefing reporters at an Insurers Committee meeting said insurance companies’ capital base would be dependent on the value or specific area of risks they carry as a business.

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