Stories by Chiamaka Ajeamo, [email protected]
With eight months to the June 30 recapitalisation deadline of the National Insurance Commission (NAICOM), the insurance firms are now running to their investors for capital upgrade.
While some companies got the approval of shareholders at their last annual general meetings to beef up their capital base, others have arranged Extra-Ordinary General Meeting (EGM) and will, in a couple of weeks, secure shareholders’ nod to raise additional funds.
Findings from Daily Sun revealed that some insurance firms have begun negotiations with private investors while some are in mergers and acquisition discussions. Most of the public quoted underwriters are persuading their existing shareholders to increase their shareholding while appealing to new investors to see their respective firms as the next investment haven.
Whichever plans the firms have, they have eight months to actualise them or else many of them may cease to exist by June 2020 unless the regulatory body decides to play ‘mother hen’ and grant operators an extension, which may likely be, judging from the fact that about 50 per cent of the insurance companies are still at the elementary stage of recapitalisation.
The sector is challenged with low risk retention capacity hence, leading to huge premium flight on a yearly basis. Moreover, the insurance business dynamics and costing have long changed, yet the industry is still operating with the same level of capitalisation that was done at the last recapitalisation in 2007. These, coupled with increased claim costing compared to premium paid, are negatively affecting the balance sheet of insurers, thereby, making them incapable of meeting their civic responsibilities such as; payment of claims as and when due, even as they were losing risks businesses in aviation, maritime and energy sectors to foreign insurers due to low capitalisation.
It was in view of this that the National Insurance Commission (NAICOM) announced a new capital regime.
According to the directive, Life insurance firms are required to increase their minimum paid up capital to N8 billion from N2 billion while, General Insurance companies are to beef up their capital base to N10 billion from N3 billion.
Also, composite insurance firms are mandated to increase their capital to N18 billion from N5 billion and Reinsurance companies are to increase theirs to N20 billion from N10 billion.
To meet up with the new capital base, NAICOM instructed that the minimum paid up capital would be through any or combination of its laid down conditions which includes existing paid up share capital; cash payment for new shares issued; retained earning-capitalisation of undistributed profits; payment in kind (other than by way of cash) for new shares issued such as properties, and Treasury bills.
Others are shares, and bonds which must be converted to cash not later than three months to the deadline for recapitalisation and share premium. The commission further explained that insurance companies are permitted to use their escrow account with the Central Bank of Nigeria(CBN), shareholders’ funds, statutory deposit, and mergers and acquisition as options to meet up recapitalisation.
Companies recapitalisation plans
To this end, seven insurance firms; AIICO Insurance Plc, LASACO Assurance Plc, Cornerstone Insurance Plc, Consolidated Hallmark Insurance Plc, WAPIC Insurance Plc, Sunu Assurances Nigeria Plc, and Sovereign Trust Insurance Plc, disclosed that they need over N50 billion to meet the new capital benchmark for June 2020.
Some of the listed firms, aside approaching their shareholders, have also solicited help from the Nigerian Stock Exchange (NSE) to raise fund through Initial Public Offerings (IPOs).
Recently, at its EGM, AIICO received shareholders’ approval to increase its authorised share capital to N18 billion from N10 billion. This is in line with its readiness to meet the new minimum capital requirement for composite insurance license, which AIICO is currently operating with.
Speaking at the EGM, the Chairman of the Board, Mr. Kundan Sainani, stated that AIICO has received NAICOM’s no objection to its recapitalisation plan comprising a combination of private placement, rights issue and bonus issue.
LASACO has also been granted approval by its shareholders to raise additional N10 billion. The additional capital, when added to its current shareholders fund of over N8 billion, will allow the company hit N18 billion capital base benchmark as a composite insurer.
In the same vein, shareholders of Cornerstone Insurance Plc have authorised its Board of Directors to raise additional N10 billion fresh capital so as to meet the recapitlisation deadline.
The shareholders, who gave their consent at its 27th Annual General Meeting (AGM) in Lagos, approved that the new capital should be sourced through issuance of any form of equity instruments, whether by way of public offering, private placement, rights issue or other methods which the directors deem fit, with or without preferential allotments, either locally or internationally, at such dates and on such terms and conditions as shall be determined by the directors.
On its part, Consolidated Hallmark Insurance (CHI) plans to grow its capital base from N6.1 billion to N10 billion by way of rights issue, thus, needing an additional N3.9 billion.
Consolidated Hallmark further disclosed that other options available to the company to achieve the additional capital required were private placement, public offer or merger and acquisition.
Shareholders of WAPIC have, as well, authorised the company to raise its authorised share capital to N18 billion for its Life and General businesses from the current N8.5 billion, this implies that the underwriter is looking for about N9.5 billion to meet the new capital directive.
Likewise, SUNU Assurances is already exploring about N6 billion rights issue to raise its capital base beyond the current N7 billion, which will enable the insurer to underwrite all classes of general risk business.
According to its Managing Director/CEO, Mr. Samuel Ogbodu, the Sunu Group, based in Paris, France, owned 65 per cent of the company, and has promised to pick up 65 per cent of the rights issue.
For Sovereign Trust Insurance (STI) its Chairman, Mr. Oluseun Ajayi, said the company’s mandate to scale up the capital base is already at an advance stage, adding that the programme for capitalisation will take off with the issuance of rights to existing shareholders of the company.
Oluseun said the firm will be issuing a total of 4.17 billion ordinary shares to its esteemed shareholders and the decision will be finalised by the third quarter of 2019.
Other underwriting firms including; Linkage Assurance Plc, Anchor Insurance Limited, Saham Unitrust Insurance Plc, Universal Insurance Plc, Guinea Insurance Plc, Industrial and General Insurance (IGI) Plc, Great Nigeria Insurance (GNI) Plc, are also discussing with investors even as some are going for the options of mergers and acquisition.
Recall that recently, InsuResilience Investment Fund (IIF), a foreign investor from Germany acquired 39.25 per cent stake in Royal Exchange General Insurance Company (REGIC), a general insurance subsidiary of Royal Exchange Plc thereby, injecting N3.6 billion into the company.
The acquisition, according to the company, was in line to meet up with the recapitalisation requirement issued by NAICOM.
According the Acting Commissioner of Insurance, Mr. Sunday Thomas, the recapitalisation exercise will certainly boost the sector’s financial capacity to underwrite bigger risks in major sectors like oil and gas, aviation, and maritime where most risks continue to be ceded to foreign firms abroad.
Thomas added that the exercise will also birth an insurance industry with a positive image which can contribute significantly to the gross domestic product of the economy.
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