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NIGERIA: Minimum Insurance Capital Requirements More Than Tripled

Nigeria’s Insurance regulator, the National Insurance Commission (NAICOM) has substantially raised minimum capital requirements for insurance and reinsurance firms operating in the country. The move is seen by the industry as likely to trigger a number mergers and acquisitions.

Under the new rules, issued in a circular on 20 May 2019, life insurance companies are required to increase their minimum paid-up share capital from NGN2 billion (US$5.55 million) to NGN8 billion; general insurers, from NGN3 billion to NGN10 billion; composite insurers, from NGN5 billion to NGN18 billion; and reinsurers from NGN10 billion to NGN20 billion. The new provisions are an amendment to the statutory deposits stipulated in Part III, Section 10 of the Insurance Act 2003.

Existing companies will have until 30 June 2020 to comply with the new capital requirements, whereas they will apply immediately to all new companies seeking an appropriate insurance licence. The new requirements, however, do not apply to takaful operators and micro-insurance companies. According to the circular, the new amounts reflect the: “astronomical increase in value of insured assets, consequent exposure to higher level of insured liabilities and operating cost of insurers.”

Industry stakeholders generally view the move as helping to drive consolidation in the industry, which will favour foreign companies with stronger capital bases than many local market players. Deji Olatoye, a Partner in The Lodt, a Nigerian law firm, said: “The new requirements are an indication that NAICOM is strongly motivated in forging consolidation in the industry, and that foreign insurers, backed by foreign investment, are those that are best placed to meet the new requirements. Insurers such AXA Mansard, NSIA and Old Mutual will find themselves well-placed to acquire a few minnows.”

Kunle Ahmed, Chief Executive of Lagos-headquartered AXA Mansard, in an interview with Economic Confidential, said: “There will certainly be some consolidations and fund raising among insurers in the coming months.” François Jurd de Girancourt, Head of Financial Institutions Africa at McKinsey, said: “I expect to see some consolidation, especially in the fragmented general insurance sector, where the top five players account for less than 40% of premiums.”

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