The Nigerian Stock Exchange (NSE) has forecasted an inflow of N200bn capital into the insurance sector post-recapitalisation.
This was disclosed by the Chief Executive Officer, NSE, Oscar Onyema, who spoke during the NSE Insurance Sector Forum in Lagos on Tuesday.
He said it was estimated that there would be a 400 per cent increase in the minimum capital required for life insurance companies, 333 per cent for non-life insurance companies, 360 per cent for composite insurance companies and 200 per cent for re-insurance companies.
Onyema stated that the NSE would support insurance operators in their bid to meet the new capital requirement stipulated by the National Insurance Commission (NAICOM).
The CEO noted that the insurance sector, as an important sector of the economy, needs significant support to drive its growth, while urging the insurance operators to fast-track the approval process of the ongoing recapitalisation exercise.
“It offers numerous opportunities for enhancing the economic fortunes of the country and foreign investors seeing these opportunities are acting on it accordingly.
“An estimated capital of N200bn is expected to be injected into the Nigerian insurance industry post-recapitalisation. While I am optimistic that this directive by the industry regulator will enhance performance, bring about efficiency, innovation and profitability, the industry needs significant support to unleash its growth potential.
“With the ongoing recapitalisation exercise, we will encourage the insurance operators by providing a special window to fast-track the approval process,” Onyema said.
He added that the process would only be made possible provided the operators had demonstrated high standards of corporate governance, deep social impact, high regulatory compliance and enhanced returns for their shareholders and post recapitalisation.
Giving his presentation on “Global & Domestic Insurance Landscape – Implication of the new minimum paid up share capital requirement to operators & recapitalization options available through the capital market”, the Head of Research, Coronation Asset Management, Guy Czartoryski, said the Nigeria’s insurance industry is under-developed and lagged behind its African counterparts such as South Africa, Ghana, Kenya and Egypt with a penetration rate of 0.31 per cent and an insurance density of 6.2 per cent.
Czartoryski said though the insurance industry is poised for rapid growth, cooperation between regulators, NAICOM and the Central Bank of Nigeria, is critical.
He added that partnerships with banks, telecommunications companies and regulators, as well as the roll out of micro-insurance products to Nigerians, are needed to unleash the industry potential and thus deepen penetration level.
NAICOM recently announced the upward review of the minimum paid-up share capital requirement of insurance and reinsurance companies with the exception of Takaful operators and micro-insurance companies, doing business in Nigeria.
The minimum capital base of life insurance companies was reviewed from N2bn to N8bn while that of general insurance companies was reviewed from N3bn to N10bn.
The capital base of composite businesses was reviewed from N5bn to N10bn and that of reinsurance business was reviewed from N10bn to N20bn.
NAICOM also barred regulated entities from borrowing money to meet their recapitalisation requirements, which leaves insurance companies with the options of merger and acquisition or capital raise by rights issue.
The ongoing recapitalization and consolidation exercise is expected to significantly impact the industry and equally present new opportunities in Mergers and Acquisitions (M&A) as well as private equity and public offerings.
In a series of tweets on the NSE verified Twitter handle, it said the Nigerian Insurance industry has grown remarkably over the years, generating a Gross Premium Income (GPI) of N448.6 billion in 2018, reflecting a 12% growth from 2017.
The industry also recorded an increase in its asset base by an estimated sum of N1.3 trillion as at December 31, 2018, reflecting a 17% Compound Annual Growth Rate over the last three years.
According to the National Bureau of Statistics, the Insurance sector recorded a nominal growth rate of 6.69% and a real GDP growth rate of 3.96% in Q3 2019 from 4.48% in Q2 2019 and 1.03% in Q3 2018.
This data indicates a positive outlook for the Nigerian insurance industry, the reality and headwinds faced by operators in the sector are quite formidable.