On 20th May, 2019, the National Insurance Commission (the Commission) in line with its statutory duty of ensuring the effective administration, supervision, regulation and control of insurance business and increasing the minimum paid-up share capital for the various categories of Insurance businesses in Nigeria from time to time (See section 6 of the NAICOM Act and section 6 (4) of the Insurance Act respectively) issued a circular thereby, increasing the minimum paid-up share capital for Insurance and Re-Insurance Companies in Nigeria (though exempting Takaful operators and Micro-Insurance companies from the regulation which respectively cater for the insurance needs of Sharia-compliant and low-income segments of the market).

The increase is as captured in the table below:

Recall that in September of 2005, the Commission increased the minimum paid-up share capital for the various classes of insurance businesses for the first time after the enactment of the Insurance Act in 2003. The ultimatum given to existing Insurance companies at the time to apply the Regulation lasted from 5th September, 2005 to 28th February, 2007. After that episode, no recapitalization of the Insurance business sector has taken place despite the astronomical increase in the value of insured assets, the consequent exposure to higher level of insured liabilities and operating cost of Insurers. These factors, according to the Commission, were the necessitating elements that birthed the recent upward review of the minimum paid-up share capital for the various classes of Insurance businesses by the Commission

For existing Insurance and Re-Insurance firms, the duration for the implementation of the exercise commenced on 20th May, 2019 and will run through to 30 June, 2020. However, for a new Insurer desirous of commencing Insurance business, such entity must show evidence that its paid up share capital is, at least, equal to the recently released minimum paid up share capital for the class of Insurance business it intends to run before its application may be granted. The Circular further stipulates that a new Insurer seeking to commence business in the Insurance sector must deposit an equivalent of fifty (50) percent of the new minimum paid-up share capital with the Central Bank while for an existing Insurance company, an equivalent of ten (10) percent of the new minimum paid-up share capital must be deposited with the Central Bank within the thirteen months stipulated time frame.

The above almost certainly means that prior to the June 30th, 2020 deadline, a lot of consolidation will be happening in the oncoming months as mergers and acquisitions are expected.

The development may herald hard times for Insurance companies but the idea is well in line with accepted standards and best international practices geared towards not just stabilizing the Insurance sector but the entire economy. The myriads of complaints and petitions filed by Policy holders of several Insurance companies against such companies for payment of their policy benefits further justifies the Commission’s position.

While it has been posited by observers and commentators alike that the directive from NAICOM will help Insurers to raise more capital towards facilitating the acquisition of modern digital and technology-driven infrastructure necessary to aid their efforts at deepening insurance penetration through ‘InsurTech’, it is hoped that the implementation of the Regulation will assist in solidifying the financial base of the players in the sector while also assisting them to expand the full deployment of their services to multi-finance projects and risk sectors like the maritime and oil and gas sectors as well as position them for growth on the international landscape.