The National Insurance Commission (NAICOM) has raised the minimum capital requirement for insurance firms operating in the country by 200%.
According to Mohammed Kari, commissioner for insurance, the implementation of risk-based recapitalization of insurance companies commencing from January 1, 2019.
The new recapitalisation also entails a three-tier classification for companies.
Insurance companies interested in the Tier 1 category are expected to increase their capitalisation from N5 billion to N15 billion, while those interested in the same tier but operating life business are required to recapitalize from N2 billion to N6 billion.
Non-life insurers planning to play in this tier are expected to improve capitalisation from N3 billion to N9 billion.
Kari, who was represented by Barineka Thompson, director, supervision, said Tier two composite insurers are required to recapitalise to N7.5 billion, non-life operators to N4.5 billion, while life operators under Tier 2 category are to increase capitalisation to N3 billion.
However, insurers willing to be in Tier three will maintain the current capital base of the insurance industry. To this end, non-life insurance firms in tier 3 are to maintain N3 billion; life insurance operators, N2 billion and composite insurers N5 billion.
Kari said the commission expected companies to submit their board’s decision not later than September 14, 2018.
He said the commission is not withdrawing licenses but trying to ensure that companies have adequate capital to absorb risks.
“Interest rate has gone from single to double-digit; interest rate has increased over time and with many macroeconomic and institutional factors on the upward trends, while the industry still maintains the same capitalisation in the last 10 years,” he said.
“So, it is desirable for operators to now choose which tier they want to operate in. Some companies are finding it difficult to fulfil their obligations to their policyholders and shareholders because they are carrying risks above their limits.
“In this instance, there is no cancellation of license, but operators will be subjected to solvency control levels and no mandatory injection of fresh capital by insurers.” (The Cable)
