The Commissioner for Insurance, Mohammed Kari, has identified low capital base as one of the biggest challenges undermining the growth of the insurance sector and its contributions to the nation’s Gross Domestic Product (GDP).
Kari, who spoke on the sideline of the 2018 Insurance Education of the Chartered Insurance Institute of Nigeria (CIIN) held in Ibadan, noted that the insurance sector appeared to be the weakest link in the Nigerian economy due to its low capital base.
The National Insurance Commission (NAICOM) boss lamented that the sector, which ought to be covering the risks for other sectors of the economy appeared to be failing in its critical area of responsibility as other sectors it should secure are breaking new grounds and growing faster.
The industry regulator while citing the recent regulatory directive by the Central Bank of Nigeria (CBN) to raise the capital base of Micro Finance Banks (MFBs) and Primary Mortgage Institutions (PMIs) to N5 billion and N6 billion respectively, said that it had become imperative for insurance companies to increase their capital.
Kari noted that the current N2 billion capital base for Life insurance companies; N3 billion for Non-Life; N5 billion for Composite insurance providers and N10 billion Reinsurance entities were too low to enable them operate optimally and grow.
He explained further that insurance sector anywhere in the world remained a key mobiliser of funds and provider of security, adding that it will be difficult for any insurance company to provide security if it doesn’t have adequate capital.
For instance, the Commissioner pointed out that a sector that should insure the aviation and other capital intensive sectors, could not be seen to have inadequate capital to cover the risks in those sectors.
He explained: “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 depends 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 are 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”, Kari added.
