BY NKECHI NAECHE-ESEZOBOR—Experts in the Nigerian insurance industry have kicked against the recapitalization proposal suggested by the Chairman of Heirs Insurance Group, Mr. Tony Elumelu.
According to them, Nigerian insurers do not need fresh capital to grow.
Elumelu at the recent concluded National Insurance Conference organised by the National Insurance Commission (NAICOM), said that the industry should increase it’s paid up capital to N30billion for general insurance, N20billion for life business and N1billion for Brokage firms.
Operators who spoke to BusinessTodayNG was of the view that insurance dynamics is different from the banking industry.
Kasim Garba Kurfi, managing director/ CEO, APT Securities and Funds Limited, in an interview with BusinessTodayNG, said the current recapitalization of the insurance companies are adequate and need no further increase.
Kurfi, a finance expert said: “ I do not advise insurance companies to increase their capital for now. But those who choose to capitalize should be allowed to do so voluntarily.”
He said companies should be allowed to operate with the capital that is suitable for their business.
Adeduro Ademayowa, Tangerine General Insurance, recommended that the industry should go back to the aborted capital base requirement that was proposed by the National Insurance Commission years back rather than the proposal made by Elumelu.
According to him in insurance industry the capital is not just cash that you have. Your capital is provided by your human capital and your reinsurance capital that is the difference between insurance and banking. In banking your capital is your capital but In insurance, you have the reinsurance firms that are giving you even multiple of your capacity that you have.
“Again, your experience on how to look at risk is very important than even the cash that you have. If you have N100billion cash without reinsurance backing and technical experience, you will wipe the N100billion away. Hence, when bankers are talking about capital base is different from the way we are looking at it in insurance.”
Tope Smart, Group managing director of NEM Insurance Plc was of the view that the dynamics of insurance is different from banking, noting that Elumelu’s proposal of higher capital is not the solution to the challenges of the industry.
Smart, who was also the former President of African Insurance Orgsnisation, (AIO), said “during my presidency as AIO, I conducted a research and all over the world attention is shifting from recapitalization to risk based capital. So the issue of minimum capital doesn’t come up. The research I did then, shows that Nigeria and few other African countries are still talking about minimum capital while attention is shifting to risk based capital.”
Jide Orimolade, MD/CEO, StanbicIBTC Insurance Limited, said that the insurance industry don’t need additional capital especially because they have reinsurance firms backing up their risk.
“Do we actually need to increase capital in the insurance industry, especially because there’s already a reinsurance in place.?” When you look at the life business, our business is localized hence what comes to mind is, do we need extra capital.? For me I don’t agree. What Elumelu proposed was his personal opinion.
He said some insurance companies have been existing over time and they have been able to build reserves for their companies, noting that in building up their shareholders fund, “am sure that would have been able to increase their capital over time.
He however said “is left for our regulator to decide if we need to recapitalize and the capital base for each business not him.”
The President West African Insurance Companies Association (WAICA) and Managing Director Consolidated Hallmark Insurance Plc, Eddie Efekoha, said though capital is a major resource in business, but it is not the only requirement.
According to him capital in insurance is not define and restricted to share capital. In insurance, there are reinsurance capital and retrocessionaire capital, which are capital of partners. Insurance is about spreading risks. Even if an insurance firm has huge capital, it wouldn’t be right to take risks all alone because of the capital. Risk an insurer retain on its net capital cannot be more than five per cent of the shareholders’ fund.
“To me risk based capital is the way to go, as it only requires an insurer to raise capital in line with the business it needs to write.”