Insurance sector weakest among others, says Kari

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Insurance sector weakest among others, says Kari

The insurance sector is now the weakest link in the Nigerian economy owing to its low capital base, the Commissioner for Insurance, Mohammed Kari, has said.

Kari, who spoke on the sideline of the 2018 Insurance Education of the Chartered Insurance Institute of Nigeria (CIIN) held in Ibadan, said the development is saddening.

He said the sector which ought to provide risk cover for other sectors seemed to be losing its ground as parties it should secure are breaking new grounds leaving it behind.

Citing the recent action of the Central Bank of Nigeria (CBN) to raise the capital base of Micro Finance Banks and Mortgage Guarantee Banks to N5 billion and N6 billion respectively, he said it has become crucial for insurance companies to increase their capital.

He noted that Life insurance firms presently has N2 billion capital base; Non-Life, N3 billion; Composite N5 billion and Reinsurance N10 billion.

He stated that insurance anywhere in the world is the mobiliser of funds and provider of security, noting that you cannot provide security if you don’t have capital.

The Commissioner expressed worry that a sector that should insure the aviation and other high ranking sectors, should not be seen to have capital less than that of microfinance banks.

He further stated that the consumer is supreme in the Commission’s responsibility of protection of stakeholders.

He said: “The consumer is supreme in our responsibility of protection of stakeholders. The essence of regulation is to protect the consumer principally including the shareholders. You will be surprised that when we did the letter of categorisation and advise insurance companies. A lot of them see the need for it and they indicated where they wanted to be.

“The Tier Based Minimum Solvency Capital (TBMSC) that we introduced to the sector does not compel any company to capitalize. It is mostly about categorisation of the companies. It is wrong for any operator to say they must be in Tier 1 category because others are there. It all depend on the model of operation. The two biggest player we have in the industry has 75 per cent of their businesses from Tier 3. So operators can survive in any Tier they find themselves. If they don’t appreciate the Tier they find themselves, then they should upgrade to the Tier that they aspire to be.

“As a regulator, nothing in law says I cannot forbid a company from doing a Tier business which he or she has no finances for. It is an inherent duty of the regulator to do that. The CBN ruled on capital because they taught that it is the best way they can develop their regulated entities and this is the way we also think we can regulate our regulated entities. We can’t do otherwise because the operators activities at the capital market is not as buoyant. Our operators have not been paying dividend so people will put money in them. Not to shore up their capital or follow the categorisation plan is to say we don’t want to help them. But the reverse is what we are seeing now which is that they don’t want to be helped and it can’t continue like this.’’

NAICOM had in July introduced the TBMSC structure. The Commission described it is a complimentary measure to the ongoing implementation of the Risk-Based Supervision (RBS) programme.

The policy trust of the recapitalisation programme is to enable soundness and profitability of insurers through optimal capitalisation; support the stability of the financial system; introduction of proportionate capital that support the nature, scale and complexity of the business conducted by insurers; a 3-Level TBMSC model; specifies capital requirement for each Tier Levels, based on risk classification for each Tiers; no mandatory injection of fresh capital fund by insurers; no cancellation of licence of any operator is anticipated subject to solvency control levels and specifies intervention levels.

Others include and specific actions to be taken by the Commission and operators on various levels of impairment of the TBMSC; to open up licensing window to interested investors at higher Tier Level; and restructuring of capital resources for improved liquidity and claims settlement.

But some shareholders have prayed to a Federal High Court in Lagos to stop the Commission from implementing the TBMSC, a prayer which has since be granted through an injunction by the court.

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