NAICOM prohibits use of hot money for recapitalization

The National Insurance Commission (NAICOM) is working hard to see that illicit funds are not used by insurance companies to recapitalize, it has been learnt.

According to sources working in NAICOM, the commission had put in place measures that would spot funds from unwholesome sources. They told this medium that insurance operators would have to clearly state the sources of their new capital. The sources noted that the commission would continue to issue circulars to guide the operators whenever it is observed that they are moving away from the required rules.

They remarked that in line with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulation, the commission is working assiduously to ensure the industry is not made a haven for illicit funds.

The sources said every Kobo presented by operators must be accounted for, adding that the recent circular issued by the commission had clearly stated how the operators should go about in raising the required capital. According to the circular which was obtained by this medium, NAICOM charged operators to ensure their new capital is not a loan or margin facility whatsoever.

The circular reads: “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 (i.e. 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 and it must not be a loan on the Company or margin facility whatsoever.”

It also maintained that in furtherance to the circular dated May 20, 2019, the minimum paid up share capital shall be through any or a combination of the following; existing paid up share capital; cash payment for new shares issued; retained earnings – capitalization of undistributed profit; payment in kind (other than by way of cash) for new shares issues, such as properties; treasury bills; shares; bond which must be converted to cash not later than three months to the deadline for recapitalization and share premium. NAICOM added that the items listed above can be achieved through merger and acquisition.

NAICOM said cash payment for new shares issued shall be deposited in the escrow account with the Central Bank of Nigeria (CBN), adding that deposited funds shall be released not later than 30 days after confirmation and issuance of a new licenses.

The commission posited that the shareholders’ fund as at the last date of recapitalization for existing insurance/reinsurance companies shall not be less than the required minimum paid-up share capital.

It said payment of statutory deposit shall be in accordance with the Insurance Act 2003 and shall be made not later than 30 days to the deadline for the recapitalization, stressing that all mergers and acquisitions shall be concluded not later than 60 days to the deadline for the recapitalization.

Director, Policy and Regulation Directorate, NAICOM, Pius Agboola, who also spoke on the recapitalization, said: “The liquidity position of some of the underwriters is very bad. This is because, heavy investment are made on fixed assets like building, land etc. which are impacting on their ability to meet current obligations as they fall due. The capital increase will thus make the company liquid to meet their obligations.”

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