Recapitalisation: Six insurance companies in merger talks

Six insurance companies have given notice to the regulatory agency, the National Insurance Commission of their plans to merge as part of their efforts to meet the regulator’s recapitalisation requirements.

Pius Agboola, Director, Policy and Regulation at NAICOM, who spoke to Business Hallmark correspondent, said that some other insurance companies were also looking for partners to merge.

“Only six companies have indicated interest in mergers and acquisitions out of 44 companies reviewed,” he said.

He noted that NAICOM had barred the regulated entities from borrowing money to meet their recapitalisation requirements.

He said that while some of the companies that borrowed money after the last recapitalisation in the industry were doing well, most of them had been bought over by foreign investors.

According to him, enhanced capital base would enable the insurance companies to have more capacity to underwrite more risks.

He said, “If any of them wants to bring in money, they must become owners and manage the company together, not give them money and go and sit down and expect them to pay back.

“When they are owners, they will have directors; they know how the company is being run. If the person at the helm of affairs is not doing well, they will fire him and employ another person.”

Agboola said while the intention of the recapitalisation directive by NAICOM is not for companies to merge, if the option would be to the benefit of the shareholders, then so be it.

“In 2005/2007 recapitalisation, about four companies merged to become Custodian Vantas Kapital, two companies merged to become LASACO, two companies merged to become Linkage,” he said.

“Three companies merged to become NEM, and two companies merged to become Consolidated Hallmark, among others.

“These companies are not doing badly, but can still do better, so consolidation is done to make companies better and not to destroy them.”

The NAICOM director assured the shareholders that the commission had developed an appropriate framework to ensure that their investments were secured during the exercise.

One of the companies, Cornerstone Insurance Plc., said it was in merger talks with some insurance companies ahead of the recapitalization deadline set by the National Insurance Commission (NAICOM) for the insurance sector.

The move is to strengthen its capital base. The Group Managing director of the company, Ganiyu Musa, said consolidation with other market players was more efficient compared to just seeking fundraising.

Although Musa didn’t reveal the names of the insurance companies negotiating with Cornerstone Insurance, he said consolidation would place the firm in a stronger position, boost expertise, improve technical capacity and even strengthen the capital base of Cornerstone Insurance.

While the consolidation is expected to aid the company’s recapitalization process, Musa said the Cornerstone Insurance had already met the recapitalization request by NAICOM.

According to him, the company has exceeded the N18 billion new minimum capital required by the insurance market regulator. Musa said the sale of its property and head office boosted the liquidity of the company, placing its finances in a better footing.

“The sale of our new property along Lekki axis has further increased the liquidity of the company to meet and surpass expectations. The company would have loved to keep the property for the long run, but we were challenged with the fact that real estate investment is not admissible in the ongoing recapitalisation.

“This necessitated the sale of the building for a handsome amount that covers the cost of the building project and still left with profit. At present, we are in a stronger financial position to scale through the exercise as our balance sheet is stronger and healthy,” he said.

The Managing Director/Chief Executive Officer, Capital Express Assurance Limited, Mrs Bola Odukale, said that the company was in talks with three companies for acquisition purposes.

Latest summary of the recapitalisation plans of insurance companies obtained from NAICOM showed that most of the companies planned to raise capital through share premium, capitalisation of retained earnings, Initial Public Offerings, right issues and private placement.

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Currently, there are 57 insurance companies, comprising 14 specialist life insurance firms, 28 general insurance companies, 13 composite insurance companies and two reinsurance companies operating in the country, according to the Nigerian Insurers Association.

It would be recalled that in 2019, NAICOM raised life insurance companies’ capital from N2bn to N8bn.

General companies got a raise from N3bn to N10bn, while composite insurance companies’ capital was raised from N5bn to N18bn.

The regulator also increased the capital of reinsurance companies from N10bn to N20bn.

NAICOM stated that the insurance firms’ paid-up capital would be their new capital base.

The National Insurance Commission (NAICOM) in a recent circular extended the recapitalisation deadline for Insurance and Reinsurance Companies earlier slated for June 30, 2020 to December 31, 2020.

The directive was with the exception of Takaful operators and Micro-insurance companies doing business in Nigeria.

The circular added that existing minimum paid–up capital share of Life Insurance business was reviewed and raised from N2 billion to N8 billion.

General Insurance business was raised from N3 billion to N10 billion, Composite business was raised from N5 billion to N18 billion and Reinsurance business was raised from N10billion to 20 billion


Author: abokimallamfx