Majority of the insurance companies raising fresh funds to meet the ongoing new capital requirement set for players in the industry have embarked on rights issues among other recapitalisation options.
A cursory look at recapitalisation plans of most companies shows that most have rights issue as first action plan, which they said was necessary to carry along existing shareholders, particularly the minority equity holders in the exercise.
BusinessDay checks show that companies like Wapic Insurance plc, Sovereign Trust Insurance plc, Consolidated Insurance plc, Guinea Insurance, Niger Insurance plc, AIICO Insurance, Saham Unitrust Insurance Limited, among others, have all included rights issue in their recapitalisation plans.
Rights issue is an issue of shares offered at a special price by a company to its existing shareholders in proportion to their holding of old shares. It is a subscription rights to buy additional securities in a company made to the company’s existing security holders.
Stephen Dike, chairman, board of directors, Niger Insurance plc, told shareholders at the company’s Annual General Meeting in Lagos that the essence of the rights issue was to give existing shareholders the ‘right of first refusal’ before such stakes could be given to an outsider.
Dike said it was proper that existing shareholders are given opportunity to take their rights because the company belongs to them.
Boniface Okezie, national president, Progressive Shareholders Association of Nigeria (PSAN), said the stability of the insurance industry was key to economic growth of the country, and that PSAN would give all its support to ensure that the sector stands strong.
Okezie said insurance companies create jobs in the economy, and shareholders would help many of them to recapitalise despite regulatory challenges in the country.
With an estimated N200 billion expected into the Nigerian insurance industry after the ongoing recapitalisation by underwriters, the sector is hopeful to emerge stronger, contribute reasonably to the economy and also be able to offer good returns to investors.
Industry experts believe that the sector post consolidation will have enough resources to attract quality manpower, acquire necessary skills to underwrite big ticket risks, increase retention in the local market, and take advantage of untapped potential to create shareholder value.
The National Insurance Commission (NAICOM) had in a circular issued on Monday, May 20, 2019 announced increase in the paid-up share capital of life companies from N2 billion to N8 billion; general business from N3 billion to N10 billion; composite business from N5 billion to N18 billion; and reinsurance companies from N10 billion to N20 billion.
According to the Commission, the minimum paid-up share capital requirement shall take effect from the commencement date of the circular (May 20, 2019) for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than June 30, 2020.
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