The Managing Director, Leadway Assurance Company Limited, Mr. Oye Hassan-Odukale, has commended the National Insurance Commission (NAICOM) for its innovative reform initiatives in the nation’s insurance industry.
The industry top player gave the commendation against the backdrop of the latest Tier-Based Minimum Solvency Requirement (TBMSR) measure introduced by the industry regulator.
Hassan-Odukale projected that the introduction of the solvency requirement for insurers effective next January 1would help to restructure the market in a way that enables any insurance company to make a choice on which segment of the market will promote its investment and other interests based on available capital at its disposal.
Specifically, he noted that with the latest restructuring template, insurers do not have to be compelled to increase capital to underwrite risks that stress their capital without delivering commensurate returns to their investors or shareholders.
The Leadway chief explained further that the restriction would foster the emergence of players with capacity to become retail specialists or become specialist underwriters in critical sectors of the economy with the attendant implications for improved contributions of the insurance industry to the nation’s Gross Domestic Product (GDP).
He said: “The news of NAICOM’s introduction of TBMSR is a positive one. I am confident that it is an initiative with potential upside for the industry to grow and take its rightful position as a formidable contributor to our national economic activities, growth and development as it is in developed economies.
“It is high time we moved beyond the 0.3 per cent contribution to GDP and improve our ranking within the comity of African insurers (heavily dominated by South Africa) as measured by the African Insurance Barometer.
“Overall, we should expect an improvement in the capacity and reputation of the industry on the back of unwavering market discipline, improved claims settlement, stronger local retention, increased prudence and promotion of appropriate pricing”, Hassan-Odukale added.
, believes
On how the TBMSR will affect the solvency margins of risk underwriters generally, Hassan-Odukale, who is also the Chairman of the Sub-Committee on Publicity and Communication of the industry’s Insurers’ Committee, clarified: “It is important to note that all insurance companies already fall within each restructured tier therefore, no company needs to raise additional capital unless they have existing capital deficiency or prefer to play within a tier above its current capital level.
“Leadway Assurance which falls within the Tier 1 bucket currently has shareholders’ funds valued in excess of N40bn compared to N15bn required for a Tier 1 composite insurer. A number of other Nigerian insurers are also within this tier. We believe this TBMSR is good for our industry as it helps to promote the financial health of insurers and ultimately consumer confidence.
“Nigerian insurers are already at different levels of the tiered system. Each company will then be placed within the bucket that they already belong. Should companies now decide to play at a level higher than their current tier, the shareholders can take capital actions either by mergers or injection of new funds. With the TBMSR, insurers simply play within the limit of their solvency capacity”, he added.
The industry expert noted further that unlike the previous capitalization regime, under the new one no insurer is being asked to shore up capital and licences of any operator will not be withdrawn, adding that companies simply have to choose which tier they want to operate in, ensuring that they stay within their capacity so that they are able to meet the obligations of the risks that they carry.
He said: “If a Tier 3 company then wants to play at Tier 1 level, nothing stops them from embracing voluntary merging with other companies in order to scale up their capacity and build more formidable and globally-competitive institutions that would create value for stakeholders and investors.
“At the end, the major difference between the three tiers will be in the nature of risks underwritten by each insurer depending on each insurer’s current capital position. To reiterate, the choice of whether to increase capital is left to the insurer who must decide within which tier it wants to play the market as the regulator has not required any company to increase capital above the current minimum”, the Leadway boss added.
Under the new Tier-Based Minimum Solvency Requirement (TBMSR), the minimum capital requirement (policyholders’ surplus/shareholders’ funds) for insurance companies remains as the base Tier 3 capital (N3bn for General Insurance; N2bn for Life).
Tier 3 companies are now only able to write retail insurances (micro insurance, motor, fire, agriculture, compulsory liability insurances, individual life, health and miscellaneous insurance). Tier 2 companies are required to have 150% of the base capital (N4.5 for General Insurance and N3bn for Life) based on the types of risks written.
Tier 2 companies can write retail insurance as prescribed under Tier 1, including commercial and industrial risks and group life assurance.
Tier 1 companies are required to have 300% of the base capital (N9bn for General Insurance and N6bn for Life) to write all risks including annuity and exclusively Special Risks (e.g. energy and aviation risks) which are highly capital intensive in terms of risks retained on the balance sheet of the insurer in addition to any reinsurance capital purchased.
This implies that composite companies (Life and General Insurance) at any tier only need to add both sides to make up the required capital, to make up N5bn for Tier 3, N7.5bn for Tier 2 and N15bn for Tier 1.
