'Insurers' Capitalisation Won't Rise Astronomically'
by Nnamdi Duru
With the fear of a complementary astronomical hike in capital prescriptions for insurance companies expected from the National Insurance Commission (NAICOM) as a fallout of the recent increase in the capital base of banks from N2 billion to N25 billion, the insurance regulatory agency has assured that the percent increase in capitalistion to be expected would not equal that of banks.
The Commissioner for insurance gave this assurance in a telephone interview with THSIDAY last weekend while reacting to the new capitalisation prescribed by the Central Bank of Nigeria (CBN) for banks operating in the country.
In a survey by THISDAY, all the Chief Executives of insurance companies sampled expressed fear that if the ongoing recapitalisation of banks to N25 billion is successful, NAICOM might be spurred by the success to hike capitalisation of insurance companies out of proportion.
The last recapitalisation exercise in the insurance industry, which ended February 26, 2004 failed in achieving one of its major objectives, reducing the number of players to a reasonable figure. At the end of the exercises, operators were reluctant to merge while many operators manipulated figures including shareholders' fund and asset revaluation to arrive at the prescribed capitalisation.
Reacting to the implications of the recent hike in banks' capitalisation coming barely four months after recapitalisation in the insurance industry, Bailey said, "definitely, capitalisation will not remain same. We are not allowing new companies to come in at this level of capitalisation, insurance companies' capitalisation will go up".
On the percent increase insurers should expect expect, the Commissioner assured operators that the increase in capitalisation expected would not be of the same magnitude with that of banks because according to him, "capital of insurance companies does not serve the same purpose as capital of banks".
He rationalised the above explaining that insurance companies depend more on reinsurance treaties as available risks are usually shared between co-insurers and this would increase the capacity of individual companies to underwrite risks.
Bailey argued that the nation's finance industry is yet to witness real growth and development in recent times as the nominal increases recorded were as a result of hyper-inflation. He said the sector's performance has remained very low in real terms but high in volume due to inflation that is ravaging the economy.
The Commissioner for Insurance also pledged his support for any government policy aimed at strengthening the finance industry including the latest policy on recapitalisation of banks operating in Nigeria.
NAICOM had immediately after the last recapitalisation exercise in the industry said that it was closing the gates against companies that did not meet the capitalisation as well as new entrants till the end of this year when new entrants might be allowed with a higher capitalisation.
Meanwhile, operators have been lamenting dearth of fresh businesses to justify the additional capital that was injected into the industry recently. They stated their expectation that with higher capital, volume of business would rise. This situation they said is yet to materialise.
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