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A major consolidation expected to strengthen the capacity of insurance companies and rid the industry of weak firms that do not have the capacity to meet their obligations is around the corner, BusinessDay has gathered.
The move, which is falling in line with the industry rebranding campaign that is expected to happen in the second quarter of 2018, is targeted at forcing companies that do not have the capacity to pay claims, dividends, salaries regularly or other obligations to recapitalize, go into mergers or be acquired by stronger companies.
According to industry sources, twenty seven companies have been identified in this category and would be expected to look at the different survival options or be forced to be taken over.
At the end of 2016, the insurance industry total assets stood at N940.5 billion, while shareholders fund was N364.01 billion, according to the National Insurance Commission (NAICOM).
Industry total premium in 2016 stood at N350.77 billion, while profit after tax was N37.22 billion.
From this, the industry paid a net claims of N110.00 billion.
Mohammed Kari, commissioner for Insurance/CEO of NAICOM who confirmed the development, said the regulator and operators have agreed to embark on consolidation of the sector.
“It is not new to you that there are companies that have not been able to pay dividend for many years, you also know that there are companies that cannot pay claims, and you are also aware that there are those who cannot pay salaries regularly”.
Kari said. “we have given them opportunity to voluntarily decide on what to do or we will force them.”
He said the Commission will be working out modalities to address these challenges, and this will happen soon.
Kari also stated that this is for underwriting companies, while urging insurance brokers to also think of partnering with each other to enhance their compliance level.
A director in the Commission who would not like to be mentioned said there is an ongoing review in the commission’s distress management mechanism.
“Part of our role as the regulator is to protect the interests of the policy holders in matters concerning terms and conditions of contracts of insurance”
According to the director, don’t be surprised if you hear new capital requirement for underwriting firms because consolidation is urgently needed.
A top executive at the Nigerian Insurers Association (NIA) said “there is no doubt that we have a lot of fringe players in the market, so consolidation is the way to go.”
The NIA boss however said “we shall wait on the regulator to come up with a plan because we are already discussing it together.”
Funmi Babington- Ashaye, president, Chartered Insurance Institute of Nigeria told journalist recently in Ijebu-Ode that NAICOM must take a decisive decision on what to do with weak companies that cannot meet claims obligation.
She said, “to change the negative perception about the industry, build confidence of the insuring public, then inability of some companies to pay claims must be taken care of”.
The last insurance industry consolidation took place in 2007, when the regulator increased statutory capital, leading to several mergers and acquisitions, which brought down the number of underwriting firms from about 115 to 62 companies.
Then, the capital base was raised to N2 billion for life companies; N3 billion for general business and N10 billion for reinsurance business.
Currently, there are 28 general business; 14 life business; 13 life and general and 2 reinsurance companies. There are also two specialists and three window Takaful operators as well as 17 microinsurance operators (Window).
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