Recapitalisation: Implications for Nigeria’s insurers

Nigeria's Insurance Industry has been highlighted as an area that has not experienced significant growth over the past decade. According to Guy Czatoryski, Head of Research at Coronation Merchant Bank, the sector has shown minimal growth when adjusted for inflation, with a penetration rate of only 0.31%, significantly lower than other countries with similar GDP per capita like India and Kenya. To address this stagnation, the regulatory body, the National Insurance Commission (NAICOM), has introduced a recapitalization exercise that requires insurers to increase their capital base significantly. This exercise aims to drive the growth and development of the industry, which has been hampered by fragmentation and low capitalization. The deadline for companies to submit their recapitalization funds was set for the 20th of August, with feedback expected by the 17th of September. The implications of the recapitalization exercise on the insurance sector are expected to prompt companies to raise new capital and engage in mergers and acquisitions. Already, six companies are in the process of raising capital, with more expected to follow suit in the coming weeks and months. The increased capital requirements may lead to consolidation in the industry as companies seek to meet the regulatory threshold set by NAICOM. The timeline for the recapitalization exercise is stringent, with all mergers and acquisitions planned to be concluded 60 days before the June 2020 deadline. This compressed timeline has similarities to the reforms implemented in the banking sector in 2004 by Professor Charles Saludo, which resulted in a significant reduction in the number of banks and a subsequent increase in banking activities in Nigeria. The upcoming changes in the insurance sector are expected to have a similar transformative effect, pushing companies to adapt to the new regulatory landscape. In terms of specific segments within the insurance industry, composite insurance companies may face challenges in meeting the new capital requirements, leading to potential consolidation within this sector. On the other hand, non-life insurance companies that currently meet the capital criteria may still engage in capital raising activities and mergers and acquisitions to strengthen their position in the market. When discussing the future of insurance in Nigeria, Czatoryski emphasized the importance of trust and education in increasing insurance uptake. While mandatory insurance in certain areas like car insurance is crucial, he believes that alternative approaches such as micro-insurance, as seen in Southeast Asia and Ghana, can also drive higher participation rates. By familiarizing the population with insurance and emphasizing its importance in mitigating economic risks, the industry can attract more customers and enhance its overall stability. As the insurance sector braces for significant changes, the industry players will need to adapt quickly to meet the new regulatory requirements and position themselves for growth. With the deadline for mergers and acquisitions fast approaching, it remains to be seen how companies will navigate the challenges and opportunities that come with the recapitalization exercise.