Insurance Recapitalisation Ripples

The decision by the insurance sector regulator to revise backward the deadline for the recapitalisation exercise  in insurance industry is causing ripples in the industry, writes Ebere Nwoji

Since the National Insurance Commission (NAICOM) announced its decision to revise backward the deadline for the recapitalisation exercise in the insurance industry from the initial January 1 , 2019, it had fixed, to October 1, 2018, insurance industry operators and stakeholders  have not been at ease.

Indeed, there have been palpable fears on the possibility of the development seeing to the end of many operating firms and attendant job losses.

Findings showed that some employees of insurance firms are already plotting their exit from the sector as it appears they would be unable to beat the deadline.

In fact, it was gathered that some management staff of some medium and small scale insurance firms have made up their minds to accept lower positions in mega insurance firms that will be ready to accept them just as clients of such firms are beginning to negotiate with alternative bigger firms for renewal of their policy contracts since it has become obvious that it is only the mega firms that may survive the situation and remain in business.

Indeed, the modest way of expressing the situation on ground in the insurance sector today is that things have fallen apart and operators are no longer at ease.

But in what looks like last resort in the situation, the operators have resolved to face confront NAICOM.

While some chief executive officers  said they would  seek legal action to make NAICOM retrace its steps on the  latest decision which in their view would  put the industry into serious chaos, the workers under the aegis of Association of  Senior Staff of banks, Insurance and financial institutions(ASSBIFI) have written a letter to the commission, imploring  it to consider the negative implication of its  decision on the recapitalisation exercise.

The association in the letter, titled: ‘An open letter to NAICOM on recapitalisation of insurance companies in Nigeria, the tier-based minimum solvency capital, a call for review of period of implementation in order to save insurance companies and our jobs,’ stated: “Our attention has been drawn to the recently introduced “Tier Based solvency capital by NAICOM to insurance industry which requires that the existing 57 insurance firms in the country be categorised as tier 1,2 or 3companies respectively with a take-off date of October1, 2018, a time frame which is poised to do more harm than good to the economy as it is bound to result to job loss with the attendant increase in unemployment – a major campaign point for the government that promised the creation of three million jobs”.

ASSBIFI  added: “Our association believes that as stake holders in the economy, since the main purpose of the restructuring is to secure better opportunity for Nigerian citizens, such a decision by NAICOM should have taken us into consideration although the Commissioner for Insurance posited that  the new tier-based recapitalisation was unanimously agreed upon at the insurers committee retreat in February in Abeokuta.

“We beg to differ. Our employers have disclosed to us that their understanding and expectation is that the restructuring will be risk based and not tier based and that they will be given enough time line which neither will be the initial January 1st,2019 nor the newly announced October 1, 2018.We strongly appeal for more time of December 2019.”

The workers added   that the socio economic effects of imposing the tier based capital without more time for adequate planning would be rift and catastrophic .

They insisted that the idea that the decision was a complimentary measure to the ongoing implementation of the risk based supervision programme was not tenable because the resultant effect  on its operational impact in form of higher regulatory cost, change in the risk appetite and internal capital trigger points, change in level playing field, review of investment strategy, culture and processes, matching adjustments, liquidity premium treatment and capital injection by investors who are mindful  of year  2019 as an election year would be rift and catastrophic.

They, therefore called on NAICOM to extend the implementation date, have consultation with stakeholders with a view to fashioning  out the most acceptable way to go about  the plan without loss of jobs.

Not left out in the protest against the new deadline are the insurance sector shareholders, who stated that while they were not opposed to the recapitalisation of insurance firms, they are of the view that the new deadline, which gives insurance firms barely one month to  comply is not realistic.

Similarly, an analysts at CSL Stockbrokers Limited have warned that, although the recapitalisation of the insurance industry is long overdue considering the deterioration in the capital of underwriters since the last recapitalisation exercise was carried out in February 2007, it is practically impossible for underwriters to meet up with the latest deadline in view of the duration involved in raising capital amidst the current negative sentiment from investors’ in the equities market.

“Furthermore, we believe the recapitalisation exercise, if not well managed, could potentially affect investors confidence and sentiment in the insurance sector, leading to a knee-jerk sell off on insurance stocks. Furthermore, given the fragile recovery of the economy, there is need to avert the negative consequences associated with the potential collapse of insurance companies who are unable to recapitalise.

They insisted that there is the need for NAICOM to liaise with insurance companies to ensure a smooth, hitch-free recapitalisation exercise that will reposition the industry for better growth. “

The Chairman, Mutual Benefit Assurance Plc, Mr. Akin Ogunbiyi, recently highlighted the dangers of the tier-based capital and regulator’s action saying  it could be counter-productive, anti- growth and disruptive.

Ogunbiyi said the exercise might usher in era of delisting of insurance stocks from the Nigerian stock market. He also said the tier-based recapitalisation could lead to hostile take-overs of insurance firms for peanuts especially by foreign investors with short term gains as focus.

“This development,  in my opinion could be counter-productive, anti-growth and disruptive. The immediate implementation of the tier-based rating could to crisis of confidence for the entire insurance industry where only about seven of the 59 companies qualify under the new standard,” he stated.

“As an industry, we need to urgently adopt a value innovation strategy to enable us provide relevant affordable products for our teeming population.

“My advice is that as a priority, we must align insurance services to the unique lifestyles of our citizenry in all income groups,” he added.

From every indication, all stakeholders  are united in their call on the NAICOM, which is  the  to shift  the deadline for the recapitalisation from October 1,  2018 to a longer period to enable operators put their houses in order.

Another important fact is that NAICOM, in the face of the risk-based  solvency capital should put up a legislation or guideline that will protect the interest of companies that will go into tier2 and 3 , and make the insuring public have confidence and regard on  them to give them businesses.

This has become necessary because the major fear of operators is that with the scaling of insurance firms into three tiers,  hardly will any member of the insuring public want to give his business to any company in tier three.

Therefore, some analysts have called on NAICOM to listen to the yearning of the industry operators and stakeholders and return to the drawing board on the tier based recapitalisation excise and be able to come up with a comprehensive plan on how to implement the programme without injury  to any of the parties.