With the recent circular released by the National Insurance Commission (NAICOM) detailing components of the new minimum capital requirement for insurance companies, top insurers earlier predicted to have scaled through the hurdle may still not be there yet as they will have to restructure part of their capital to be certified successful.
BusinessDay analysis of the regulator’s benchmark shows that qualifying capital and shareholders’ fund will have to complement each other for successful capitalisation.
The implication, therefore, is that while the very top players with huge retained earnings may not necessarily shop for fresh capital, they will have to convert the qualifying part of their retained earnings to paid-up shares to meet the new capital requirement.
For mid-level and small insurance companies, however, they have no option but to raise additional capital through their shareholders, or fresh investors, convert some properties to cash or consider merger and/or acquisition to scale through.
Explaining components of the new minimum capital requirement, Pius Agbola, director, policy & regulation, NAICOM, said the paid-up share capital and shareholders’ fund have to complement each other, adding that a company could be okay in shareholders’ fund and not okay in paid-up capital. In that case, the company would have to issue new shares and can capitalise the realisable part of the retained earnings for the purpose of meeting the requirement.
“Only the portion of the retained earnings that qualified as distributable profit can be capitalised,” Agbola said.
The insurance market at the moment is immersed in confusion as to what the actual status of various firms are, even as they prepare to submit their recapitalisation plan to NAICOM, having been given August 20 as deadline for submission.
Chapel Hill Denham Limited, in a recent report, tabulated the capital components of insurance companies according to their line of businesses.
A breakdown of the report shows Leadway Assurance has a shareholders’ fund of N46.46 billion as at December 2018 and qualifying capital of N29.96 billion in the same period. AXA Mansard Insurance plc has shareholders’ fund of N18.17 billion as of June 2019, and qualifying capital of N12.0 billion.
In the same category, AIICO Insurance has shareholders’ fund of N16.01 billion as of June 2019 and N8.43 billion in qualifying capital.
NSIA has shareholders’ fund of N10.78 billion as at December 2017, and N7.56 billion in qualifying capital.
Lasaco Insurance has total equity of N8.97 billion as of June 2019 and qualifying capital of N6.17 billion.
Cornerstone Insurance plc has N9.37 billion and N5.33 billion in shareholders’ fund and qualifying capital, respectively.
For the non-life insurers, Zenith General Assurance has shareholders’ fund of N24.95 billion as at December 2018 and N19.28 billion in qualifying capital. Custodian and Allied has shareholders’ funds of N19.09 billion.
NEM Insurance’s shareholders’ fund stood at N13.94 billion as at June 2019, while it has qualifying capital of N8.79 billion. Linkage Assurance has shareholders’ fund of N18.49 billion as at June 2019 while qualifying capital stood at N6.40 billion in the same period.
Universal Insurance has a shareholders’ fund of N9.49 billion as at March 2018, and N5.90 billion as qualifying capital in the same period. Veritas Kapital has shareholders’ fund of N7.84 billion as at June 2019 while qualifying capital stood at N5.12 billion.
Consolidated Hallmark has shareholders’ fund of N6.34 billion in June 2019 while qualifying capital was N4.50 billion. Law Union and Rock’s shareholders’ fund was N6.38 billion in June 2019, while qualifying assets stood at N4.38 billion the same period.
Sovereign Trust Insurance has shareholders’ fund of N6.30 billion in June 2019 while qualifying capital stood at N4.28 billion. Regency Assurance has shareholders’ fund of N5.32 billion in June 2019 while qualifying capital stood at N4.63 billion. FBN General has shareholders’ fund of N5.16 billion in December 2018 while qualifying capital was N3.91 billion.
Analysts at Chapel Hill noted that some of the well-capitalised insurers have the capacity to acquire smaller players with shortfalls of N3 billion, adding that insurers that are unable to raise capital could opt for acquisition early enough.
“We believe it will be difficult for listed insurers with a shortfall of above N5 billion to raise additional capital from the current weak capital market,” the analysts said.
A further breakdown of the Chapel Hill Denham report shows that in the life insurance category, FBNInsurance has shareholders’ fund of N11.97 billion in December 2018 while qualifying capital stood at N10.72 billion. Prudential Zenith Life’s shareholders’ fund stood at N8.51 billion in December 2018, as qualifying capital was N7.72 billion.
Custodian Life Assurance’s shareholders’ fund was N8.64 billion in December 2018 while qualifying capital stood at N6.69 billion in the same period. Mutual Benefits Assurance’s shareholders’ fund was N7.85 billion in June 2019 while qualifying capital stood at N4 billion.
For the reinsurers’ category, Continental Reinsurance has shareholders’ fund of N19.85 billion as at June 2019 and a qualifying capital of N13.93 billion.
Modestus Anaesoronye and Bala Augie
