THE insurance reforms bill passed for second reading last week by the Senate has pegged the minimum capital base for non-life insurance business at ? 25 billion, life business ? 15 billion, and reinsurance? 45 billion.
The bill stipulates that risk-based capital would be determined from time to time by the National Insurance Commission (NAICOM).
In section 15, sub-section 1, titled, “Minimum Capital Requirements”, the bill states that a person shall not carry on insurance business in Nigeria unless the insurer has and maintains, while carrying on that business, a minimum capital — (a) in the case of non-life insurance business, the higher of —(i) N25,000,000,000.00, or
(ii) risk-based capital determined from time to time by the Commission, adding that (b) in the case of life assurance business, the higher of (i) N15,000,000,000.00, or (ii) risk-based capital determined from time to time by the Commission and (c) in the case of reinsurance business, the higher of (I) ? 45,000,000,000.00, and (ii) risk-based capital determined from time to time by the Commission.
It states that in determining the risk-based capital required, the Commission shall take into consideration the capital for insurance risk, market risk, credit risk and operational risk, and apply such capital charges on assets and liabilities as it shall determine from time to time.
The bill stated that for the purpose of this section, “capital charge” means the proportion of capital required to take care of the potential deterioration of the economic value of an asset and the uncertainty in estimating liability due to the occurrence of an adverse event.
It stated that the minimum capital requirement specified in subsection (1) of this section may in the case of a new company consist of one or more of —(a) Government Bonds and Treasury Bills; (b) cash and cash equivalent.
It said the minimum capital requirement as specified in subsection (1) of this section shall, in the case of existing company, consist of one or more of (i) the excess of assets over liabilities, less the amount of own shares held by the firm and (ii) subordinated liabilities subject to approval by the Commission; and (iii) any other financial instrument as may be prescribed by the Commission from time to time.
According to the bill, an insurer registered before the commencement of the bill shall comply with the foregoing requirement within 12 months of the commencement of this bill, adding that the Commission shall (a) cancel the registration of any insurer or reinsurer that fails to satisfy the provisions of subsection; (2) of this section as it relates to the category of operation of such insurer or reinsurer; and (b) not later than 30 days after expiration of the period specified in subsection (4) of this section, publish a list of all insurers that have complied with the provisions of this section.
Where the Commission considers it appropriate, having regard to the nature, size and complexity of the insurance business carried on or proposed to be carried on by an insurer, and to the insurer’s risk profile, the Commission may issue a directive – (a) requiring the insurer to increase its minimum capital to an amount higher than the minimum specified in this section or the regulations made pursuant to this section; or (b) increasing the minimum capital requirements applicable to an insurer to a higher sum than that specified in this section or the regulations made pursuant to this section.
The bill states that an insurer intending to commence insurance business in Nigeria after the commencement of the bill shall deposit the equivalent of 50 percent of the minimum capital requirement referred to in section 15 of the bill with the Central Bank of Nigeria (CBN), and upon registration as an insurer, 80 percent of the statutory deposit shall be returned with interest not later than 60 days after registration.
However, in the case of existing companies an equivalent of 10 percent of the minimum capital stipulated in section 15 shall be deposited with the Central Bank of Nigeria.
The bill stressed that any statutory deposit made under subsection (1) of this section shall attract interest at minimum capital to be deposited with the Central Bank of Nigeria at the minimum lending rate by the Central Bank on every 1st of January of each year.
It added that notwithstanding the provisions of subsection (4) of this section, the Commission may approve the investment of the statutory deposit in treasury bills or other secured investment guaranteed by the Federal Government.
The bill states that any withdrawal from the statutory deposit shall be made good within 30 days, failure of which shall constitutes a ground for suspension from business and such suspension shall be published in the newspapers, and failure to deposit the statutory deposit shall constitute a ground for cancellation of the insurer’s licence.
Also, upon successful registration of an applicant as an insurer under this bill, the Commission shall communicate the Central Bank of Nigeria in writing and requesting for compliance with the provision of subsection (2) of this section.
The NAICOM, under the aborted insurance industry recapitalisation exercise had mandated life insurance firms to meet a minimum paid-up capital of? 8 billion, up from? 2 billion while general insurance companies are expected to increase their paid-up capital to? 10 billion, from the earlier? 3 billion.
Composite insurance (life and non-life operators) were directed to recapitalise to the tune of? 18 billion as against the previous? 5 billion, while reinsurance businesses were required to have a minimum capital of? 20 billion, from? 10 billion that was obtainable earlier.
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