Foreign investors Taking-Over Insurance Firms Over Recapitalisation


It has been revealed that many indigenous underwriting firms have been taken over by foreign investors since the last recapitalisation that took place in the insurance sector.
The Punch reports that the National Insurance Commission (NAICOM), apex regulator of the Insurance sector, confirmed that a number of local players in the insurance sector preferred being acquired by foreign entities to becoming stronger through merging with other local operators.
According to NAICOM, some of the foreign investors that have taken over local insurance companies are Prudential Africa, Axa Mansard, Allianz Group and Old Mutual.
One of foreign operators is InsuResilience Investment Fund, which recently injected N3.6bn and acquired 39.25 per cent stake in Royal Exchange General Insurance Company, a subsidiary of Royal Exchange Plc, a finance and insurance services group.
It was learnt that the acquisition of 39.25 per cent in the local firm was part of its recapitalisation moves to meet the recapitalisation requirement handed down by industry regulator, NAICOM.
The Director, Policy & Regulation Directorate, NAICOM, Pius Agboola, said that investors were taking position in the country because of the potential.
He said, “Considering the high population and developing industrial and commercial sectors, the potential for insurance business is very high. The high potential of insurance business is also evident from foreign investors.”
Agboola noted that while some of the companies that borrowed money after the last recapitalisation were doing well, most of them had been bought over by foreign investors.
According to him, the commission had introduced different recapitalisation initiatives in years past to encourage voluntary merger, but many of the companies still preferred to borrow money rather than merge.
NAICOM said merger had the potential to lift the insurance sector, adding that some of the insurance firms that took the merger route during the 2007 recapitalisation exercise were still doing very well in the industry.
During the 2007 exercise, four companies merged to form Custodian; four merged into Veritas Kapital; two merged to become LASACO Assurance; two firms merged to become Linkage Assurance.
Similarly, three firms merged to become NEM Insurance; three companies merged to become Regency; three merged to become Sterling; two merged to become Consolidated Hallmark while another two merged into African Alliance.
Under the new dispensation, the commission would not allow the companies to borrow money to recapitalise, Agboola said.
He said, “If any of them wants to bring in money, they must become owners and manage the company together, not give them money and go and sit down and expect them to pay back. When they are owners, they will have directors; they know how the company is being run. If the person at the helms of affair is not doing well, they will fire him and employ another person.”
In a circular released in June 2019 by NAICOM to its regulated entities, life insurance companies’ capital was raised from N2bn to N8bn; general companies’ got a raise from N3bn to N10bn; while composite insurance companies’ capital was raised from N5bn to N18bn.
The regulator also increased the capital of reinsurance companies from N10bn to N20bn.
NAICOM stated that the insurance firms’ paid-up capital would be their new capital base.
It said the inaugural date for the circular was May 20, 2019 while the deadline was fixed for June 30, 2020.
The commission also instructed the companies to submit their recapitalisation plan on or before August 20, 2019.

Nigeria Loses $482m From External Reserves In One Month
Nigeria’s external reserves dipped by $482.18m from N45.14bn as of July 8 to $44.65bn as of August 8, latest statistics from the Central Bank of Nigeria have shown.
The reserves which had maintained a steady rise in recent months has started suffering decline.
A research by FSDH according to The Punch, noted in its monthly economic and financial markets outlook with the theme, ‘Easy money: time to create buffers’ for the month of August that this could be linked to fall in oil prices.
Part of the research read, “The average price of Bonny Light in July 2019 stood at $66.24/b compared with the average of $66.52/b in June.
“However, in the last few days, crude oil price has dropped below $60/b as a result of trade tensions between United States and China which have impacts on the global economy.
“This may have negative impacts on revenue and other key prices in Nigeria.
“The external reserves continued on its downward trend in July 2019. The decrease in the external reserves may be attributed to lower crude oil prices and lower Foreign Portfolio Investors inflows.”
In recent months when the reserves enjoyed some growth, the Central Bank Governor, Godwin Emefiele, had said, “External reserves have recovered significantly from $23bn in October 2016 to over $43bn as of December 3, 2018.
“While the drop in our export earnings arising from our reliance on crude oil exposed the fragility of our domestic economy in 2016, it also reinforced the view within the CBN and the Bankers Committee on the need to revise our growth strategy as a nation.”
With crude oil as a major source of the country’s foreign exchange, he said, the nation’s economy became sensitive to fluctuations in the price of crude oil.
“Significant declines in the price of crude oil not only reduced Nigeria’s export earnings, the nation was also subjected to higher inflation and lower growth, given our dependence on imported goods,” he said.
With the discovery of shale oil, along with policy measures supporting alternative energy, he added, it had become imperative to build buffers against volatility.
Emefiele said this could be achieved by improving on company productivity, reducing dependence on imported goods and increasing export of non-oil goods and services.