Maduka Nweke and Chiamaka Ajeamo
The National Insurance Commission (NAICOM), has charged insurance firms to seek merger option instead of loans to meet the new recapitalisation requirement.
Addressing the media during a seminar at Ijebu Ode, the Deputy Commissioner, Technical, National Insurance Commission, Sunday Thomas, said that the rationale behind the recapitalisation exercise was to turn around the image of the sector by producing firms that are strong and diligent in prosecution of their assignments. He said surving companies would be highly proven in terms of responsibility, liquid in meeting their obligations, prompt in claims settlement, solid in assets, and visible in terms of retaining businesses within the environment.
Also speaking, the Director, Policy and Regulation, NAICOM, Agboola Pius, who spoke on the topic; ‘Recapitalisation Roadmap: Implementation, Expectations and Benefits’, clarified what should constitute a paid-up share capital saying; the features of paid-up share capital that would establish the firms’ new capital in the ongoing recapitalization exercise shall be absolute paid-up share capital, as distinct from solvency capital/capital fund/ capital base.
He noted “For the avoidance of doubt, and for an instrument to be treated as paid-up share capital, the following criteria among others must be satisfied.
“It must represent the most subordinate claim in liquidation of the insurer/ reinsurer; the investor is entitled to a claim, only on the residual assets that is proportional with its share of issued capital, after all, senior claims have been paid in liquidation (such that it has an unlimited and variable claim, not fixed or capped claim);
“The principal is perpetual and never repaid outside of liquidation; distributions are paid out of distributable profit or retained earnings; there are no circumstances under which the distributions are obligatory; It must not be a loan on the company or margin facility whatsoever.”
Agboola also said that the exercise has the tendency to improve corporate governance over-sight; a major regulatory concern in Nigeria where the management and the board tend to have exclusive control over the company, they prefer raising capital through preference shares and debt capital (Loan) however, the owners/ holders of debt capital do not enjoy any voting rights, he disclosed.
He said, “Using our experience as an illustration, merger which dilutes organization control power, could produce a good output because some companies that merged in the last capitalization when compared with those companies that did not merge but funded the recapitalization through loan, shows a clear difference”.
For his part, the Director (Inspectorate) of the Commission, Thompson Barineka, said that the sector’s recapitalization was all about restructuring the balance sheet of the insurance companies so that they can to meet their obligations to their clients.