COVID-19 outbreak to force change in Insurance Industry recapitalisation plans

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The impact of the Coronavirus outbreak that has infected over 10,000 people in the country and affected the business operating environment, is forcing the National Insurance Commission (NAICOM) to re-tweak the insurance industry recapitalisation plans.

This development is not unconnected to the fact that the outbreak has negatively changed the business landscape and dynamics as investors were skeptical on whether to invest in insurance industry currently undergoing recapitalisation or not.

Similarly, investigation shows that the price volatility in the foreign exchange market is undermining the valuation and pricing of insurance companies, especially, for those seeking foreign investment to boost their capital base to the new threshold, while local investors are still undecided to invest at this time.

And with some of those multinationals planning to invest in the nation’s insurance sector already badly affected by the impact of the epidemic, casting doubt on their financial capacity to invest by the time the virus subsides around August 2020 as predicted, the odd seems against the exercise whose deadline is December 31st, 2020.

Although, there are six months still left to the deadline date, financial analysts said, the Investment climate the world over is cloudy with some of the investing firms from France, Italy, Spain, U.K, US and other European countries who wanted to invest in Nigerian insurance industry before now, either needing their respective governments bailout to stay afloat or needing time to recover financially.

Moreover, the portfolio investors that have long fled the country’s shores with their investment are yet to return thereby, further making it difficult for underwriting firms to raise fund to recapitalise within the next six months.

Although, most companies preferred capital injection through public and private shareholders, the process of regulatory approval for such deals, especially, for the listed entities, according to market observers, takes longer time, which would make extending the deadline the ideal option to give a level playing ground for all.

As it were, findings show that most big insurers are also almost concluding their recapitalisation plans, with about 60 per cent of the low capitalised firms still at the preliminary stage of implementing their recapitalisation plans.

According to analysts, experiences from other climes where mergers and acquisition had occurred show that the remaining six months may not be enough to seal such business deal, for those tolling this path, because of, not only the bureaucracy involved, but also the due diligence that must be carried out to ascertain the level of liabilities to be acquired.

All these put together, seems to have informed the decision of the regulatory body to rejig the recapitalisation exercise.

Speaking at a Webinar conference on `Post COVID- 19: Impact on the Insurance Industry’, the commissioner for Insurance, Mr Sunday Thomas, said NAICOM will release a new recapitalisation guideline for insurance and reinsurance companies after the Covid-19 pandemic.

Stating that the pillars that formed the initial recapitalisation objectives, such as consolidation, foreign direct investments and local investors had been hindered by the pandemic, he added that, the commission is re-strategising, factoring this into the scene and creating different models to see which will be more result-oriented.

According to him, “The game has changed. Immediately we are pitched out of this pandemic, of course, we are going to release a new guideline with respect to recapitalisation exercise. The commission will be coming up with a structured way to ensure that the industry will have the necessary data to drive the business. We will look into our service delivery and awareness creation.”

On possible deadline extension, NAICOM’s spokesperson, Mr ‘Rasaaq Salami, urged operators to work with the December 31st, 2020 deadline for now, even as the regulator will review the whole recapitalisation exercise and see whether an extension is needed or not.

According to him, “NAICOM has been magnanimous with the industry by changing the earlier June 31st deadline to December 31st. For now, some are almost concluding their recapitalisation plan, some are at the preliminary stage and some have not started at all. So, the regulatory body will look at all these scenario and make the best decision that will favour the industry. But as it were, the circular on the current deadline still remain sacrosanct, until the regulator says otherwise.”

He said, though NAICOM understands the challenges some of them are going through, he urged insurance firms to find a way around these challenges, while speeding up their recapitlisation process as quickly as possible to meet the deadline.

Earlier, a Lawyer and Legal Expert, Mr Olaniwun Ajayi, said, the ongoing recapitalisation exercise in Nigerian insurance industry will suffer from the lockdown.

The insurance sector, according to him, is likely to be negatively impacted by the pandemic and investors may thus turn away from investing in the insurance sector pending when the economy eventually stabilises. The economic fallout from the Pandemic will also likely impact on the valuation of insurance companies and possibly extend the timelines for any recapitalisation or consolidation efforts, he pointed out.

In the current recapitalisation exercise, NAICOM had raised the minimum paid-up share capital of a Life insurance company from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion. Re-insurance companies were directed to raise their capital base from N10 billion to N20 billion.

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