Recapitalisation: NAICOM, jolting operators into reality

The respite and ‘cordial atmosphere’ provided for insurance operators by the sudden outbreak of coronavirus seems to have waned as the latest guideline by the regulator, National Insurance Commission (NAICOM), is certain to put them under pressure in the coming months as they deploy plans and strategies to meet recapitalisation deadline. Sunday Ojeme reports


Prior to the current engagement, which is expected to put the operators on their toes, the industry had tinkered with the exercise as it was obvious that they appeared to have been taken unawares.


As a matter on concession, NAICOM, in December 2019, extended the recapitalisation deadline by six months, giving the operators, who were supposed to conclude the exercise in June this year, an extension of six months to December 31, 2020.


The extended deadline became possible after series of meetings at the commission and Ministry of Finance.


The 58 insurance company operators and some stakeholders had actually appealed for an extension to enable them put their house together. Capital requirements


According to the new paidup share capital, life insurance providers are expected to have a minimum capital of N4 billion (existing minimum – N2bn) by December 31, 2020 and paid up capital of N8bn by September 30, 2021. General insurers are required to meet a minimum paid-up capital of N5 billion (existing minimum – N3bn) and N10 billion by 31 December 31, 2020 and September 30, 2021 respectively.


Composite insurers are expected to have a minimum of N9 billion in paid up capital (existing minimum – N5bn) by December 31, 2020 and N18 billion by September 30, 2021 while reinsurers should have N12 billion (existing minimum – N10bn) in minimum paid up capital by December 31, 2020 and N20 billion by September 30, 2021.


The Deputy Director and spokesman for the Commission Rasaq Salami, had advised that the extension should not be translated to mean that NAICOM was having a rethink about the recapitalisation process.


While the process was on with some companies already certain of meeting the deadline as well as some forwarding their plans to the commission, the emergence of COVID-19 suddenly threw spanners in the wheels, thereby disrupting their business as well as providing time for them to restrategise.


As the pandemic gradually flattens, the regulators rattled the industry again last week by what appears to have put the operators in another tight corner.


In a circular issued to the operators, which is furtherance to earlier ones referenced /25/2019, dated May 20, 2019, July 23, 2019 and December 30, 2019 respectively on the subject matter, the commission noted that the minimum paid-up share capital shall be through any or a combination of either and existing paid-up share capital, cash payment for new shares, retained earnings – capitalisation of undistributed profits.


Specifically, the circular, signed by the Director, Policy and Regulation, NAICOM, Mr Pius Agboola, for the Commissioner of Insurance, Mr. Sunday Thomas, listed payments in kind, such as properties, T-Bills, Shares, Bonds, share premium among others for new shares issued, which must, however, be converted to cash not later than three months to the recapitalisation deadline.


According to the commission, the above components are to be converted to paid-up share capital in compliance with the recapitalisation exercise and applicable laws and regulations in Nigeria.


“For private placement, appropriate clarification have been obtained from the relevant regulatory agency to the effect that insurance and reinsurance companies may offer more than 30 per cent of the existing issued and fully paid shares.


“Submission of recapitalisation progress report shall now be monthly and the report shall be submitted not later than five working days after the end of each month, effective end of August, ” the circular noted. It noted that the timeline and activities for the first phase of the recapitalisation had been scheduled to commence on August 30 for submission of monthly recapitalisation progress report, adding that completion of the submitted reports would be after five working days after the end of each month.


The commission noted that all mergers for the purpose of meeting the first phase of November 30, 2020 recapitalisation would commence on September 14 and shall be irreversible, except with a written approval of the commission. Verification


According to the circular, NAICOM shall commence capital verification on September 21, while communication of capital verification report to respective companies shall begin on November 30 and end January 21,2021 ”Deadline for compliance with the first phase of the new minimum paid-up capital by all existing companies remains December 31 and issuance of letters of compliance as at date is February 26, 2021,” the com-  mission said.


New Telegraph recalled that the commission had in June this year altered the recapitalisation time table as it factored in the impact of coronavirus pandemic on the exercise originally slated to end this year. In a circular issued to that effect, the commission split the exercise into phases with the underwriters expected to meet 50 per cent payment by December 31, 2020.


According to the circular, insurance providers must meet 50 per cent of the new minimum capital requirements while reinsurance providers are required to meet up to 60 per cent of the new minimum capital requirement.


The second phase, which will end on the final deadline of September 30, 2021, would require 100 per cent compliance with the minimum capital requirement from all insurance and reinsurance providers. Justifying the alteration in deadline, which was the second in the series, the commission said: “In our view, we think the decision to extend the deadline is reasonable under current circumstances.


The coronavirus pandemic has ravaged global economic and financial systems thus making it more difficult for an already unattractive insurance sector to raise much-needed capital.”


Operator’s view


Speaking on the new guideline, an operator, who  spoke on condition of anonymity, said the circular would have little or no impact on the exercise, especially for companies that had prepared long before the process was muted. He said even before COVID- 19, the commission had made it clear that the exercise would be in cash as assets, which were the major priority of some operators would not be considered.


According to him, “the situation is not as tight for the operators as imagined. Long before now, the commission had made it clear that only cash paid into a dedicated account would be allowed.


The regulator has also been magnanimous enough by again shifting the deadline to September next year with the first part ending December this year. “I believe the latest circular is just a reminder for everyone to ensure he or she is prepared. The exercise has been shifted and altered for too long a time.


So, its like saying if you don’t want your licence to be withdrawn, do yourself a favour by preparing, and in case you have forgotten, only cash would be allowed.” He also advised his colleagues in the industry to brace for the exercise and decide early if they would be going it alone, merging or giving in for acquisition.


Last line


With the exercise certain to be carried out, barring another unforeseen catastrophe in the mode of COVID-19, insurance operators do not have any option for now than to key into the process early enough by taking the right decision fit for their investment and outlook.


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