The National Insurance Commission (NAICOM) has released the new capitalisation requirements for insurance firms in the country. Under the risk based capitalisation requirements, each cadre namely life, non-life and composite insurance firms have had their capital base divided into three tiers.
The last increase in capital base was in 2005 when NAICOM increased the capital base from N150 million to N2 billion for operators in the life insurance segment, N200 million to N3 billion for non-life, and composite insurance firms from N350 billion to N5 billion.
Tier one is the highest capital base for each class. Tier three is the minimum capital base required for each class.
Life insurance firms now have three capitalisation tiers. Tier one companies will be required to have N6 billion as capital. Tier two life insurance firms will be required to have N3 billion, while tier 3 firms will maintain the current requirements of N2 billion.
Non-life insurance firms will now have three tiers. Tier one non-life firms are mandated to have a capital base of N9 billion. Tier two firms in this segment are expected to have a capital base of N4.5 billion, while tier 3 firms will maintain the current capital base of N3 billion.
Insurance companies operating in the composite segment, that is all classes of insurance now have three tiers. Companies operating in the tier one will be required to have a capital base of N15 billion. Tier two firms will need to have a capital base of N7.5 billion, while those in tier 3 will maintain the current capital base of N5 billion.
Deadline to meet the new requirements is January 2019.
The move could lead to several mergers and acquisitions in the industry. Raising capital through equity may be difficult for many of the firms, as they currently trade at N0.20 price floor. Retail investors who have suffered a huge loss on their investments, will also be reluctant to partake in the exercise.