These are certainly interesting times for the Nigerian Insurance Industry following the recent announcement of the Tier Based Capital Requirement for Insurance Companies in Nigeria effective January 1st 2019. Under the new regime, Insurance companies will be categorize into Tier 1, 2 and 3 based on the size of their shareholders funds.
It is expected that Tier 1 Companies will have Shareholders Fund of about 10 billion Naira in their kitty and will be allowed to underwrite all classes of Insurance business. (Composite)
Tier 2 are expected to have about 8 billion Naira in their kitty (Composite) to underwrite almost all classes of Insurance business.
Tier 3 are Companies with the current operative capital requirement in the Industry. i.e 2 billion for life underwriters, 3 billion for General Business underwriters and 5 billion Naira for composite companies. The sad news is that, unlike what is obtainable now, where these categories can underwrite all classes of Insurance business with their 5 billion Naira, under the tier based capital requirement they are restricted by the regulator to certain classes of business only. While some have applaud the new developments by NAICOM especially the big players others have argued that things should remain the way they are as Insurers can always use Reinsurance treaties and Faculties to cover up their risk exposures which is the basic workings of Insurance business globally. Some independent share holders have also argued that this new policy thrust of NAICOM is very wrong and anti – Investors. According to them, they have not gotten commensurate returns on their investment in Insurance Companies from the last recapitalization in 2007.
Secondly, most Insurance Companies that are quoted on the exchange today are trading below their share value. This Shareholders said does not give any incentive for them to inject fresh capital. Another valid argument from the Shareholders is the timing of the implementation of this new Policy. According to them, given that everybody is focused on the general elections next year, Investors would be very reluctant to commit money to Insurance Companies by way of fresh Investment as they would traditionally wait to see the political atmosphere and policy direction of whoever is elected before thinking of parting with their hard-earned money.