Risk-based supervision spurs insurers to seek fresh capital
Ahead of a proposed new risk based capital regime in the insurance industry, operators are moving to raise fresh funds to position for bigger business.
The new risk-based capital regime, which is to take-off in the third quarter of 2017, will require insurance companies to engage in business, based on the volume of their capital. This means that insurers with larger capital base will be in a position to take on bigger businesses.
Insurers are eyeing higher capital to enable them underwrite big ticket risks, especially in the oil and gas and aviation sectors, which require huge capital, to make the local content policy meaningful.
Nigeria’s local content law, allows indigenous insurers to retain up to 70 percent of the business emanating from the oil and gas industry, before it is taken overseas.
Currently, Nigeria barely retains 40 percent of the Nigerian National Petroleum Corporation’s (NNPC’s) N18.3 billion insurance premium for its group life, oil and non-oil risks covers, which have a sum assured valued at over N10.2 trillion, equal to $27 billion.
To enable them take on the additional business in the Nigerian industry, ahead of the release of the final road map for risk based regulation by the National Insurance Commission (NAICOM) some insurers are already seeking shareholder approvals to raise fresh capital.
One of the companies, Consolidated Hallmark Insurance Plc, says it is planning to shop for N2.5 billion or the equivalent locally or internationally, or a combination of both, through the issuance of shares, convertible securities or depository receipts, or any other instrument, whether as a standalone transaction, which shall be determined by the directors, subject to obtaining the approval of relevant regulatory authorities.
Obinna Ekezie, chairman of Consolidated Hallmark Insurance, says one of the key initiatives of the firm’s strategic plan, is to raise capital to drive the next growth phase of the business and to enable the company withstand the forces of change that will likely happen in the industry.
Pius Apere, managing director and CEO, Linkage Assurance Plc, also admits that the risk-based capital supervision (RBS) about to be introduced by the insurance regulator (NAICOM) will increase the need for capital injection within the Nigerian insurance industry, in order to underwrite more special or large risks.
Apere said this is also likely to increase mergers and acquisitions within the Nigerian insurance industry.
“Linkage Assurance Plc is currently only underwriting non-life insurance business and the board of Linkage’s current strategic direction is to diversify the company’s business activities, such that the strategic business plans of the company may include underwriting of life insurance business.
“This would require new capital injection in order to achieve this strategic decision, hence we are likely to engage the services of the stock brokers to raise the required capital,” Apere said recently.
Meanwhile, the board of Custodian and Allied Plc, led by Omobola Johnson, at its Annual General Meeting in Lagos, also secured the approval of the shareholders to raise additional capital via the issue of debt instruments, preference shares or ordinary shares or a combination of any of these options, whether by way of private placement, rights to existing shareholders, offer for subscription, or any staff share scheme at a quantum and price upon such other terms and conditions to be determined at the discretion of the directors and subject to any requisite regulatory approvals.
Informed sources told BusinessDay that many other insurers are also seeking to boost their level of capital, in line with the new risk-based supervision framework for the industry.
Mohammed Kari, commissioner for Insurance, said the final road map for the industry’s transition to risk base supervision will be released this year.
Kari said the commission has set up project teams for all its regulatory priorities in 2017 including transition to RBS. The team has been inaugurated and they are coming up with the program any time soon.
Earlier, Kari, had informed the insurers that the risk-based supervision model would enable them undertake risks in line with their financial capacity.
The plan for RBS in the Nigerian market actually began in July 2012, when NAICOM introduced Risk Management Framework Guidelines for identifying, measuring, monitoring and limiting the risk involved in the business for insurance and reinsurance companies.
The guidelines also laid down the processes for reviewing risk, identifying and prioritising risk, and corporate governance issues, among others. The guidelines are primed to facilitate the risk-based approach regime in the industry to ensure performance and effectiveness in its Risk-Based Supervision and Risk Based Capital Approach.
The risk regulation approach was more focused on setting standards and shifting the responsibility of deciding the risk appetite of the operator to the board and management of each company.
Big Read |