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By tomorrow, Nigeria, as usual, will be celebrating her 58th Independence anniversary, having come a long way from various political, social and economic maneuvers. Amidst the rough and smooth paths, the insurance and pension sectors have been driven by some major phenomenon in the last one year.  Sunday Ojeme reports


eyond the razzmatazz savoured by school children and the annual broadcast rituals by the president during the yearly October 1, ceremonies, is also the seriousness surrounding how much the country had developed its economy, infrastructure and otherwise.

Within these years, the nation’s insurance sector has had its own share of trouble as the market is predominantly driven by the success or failure of other sectors as well as the financial capacity of the people.    

Despite the odds of the past which were mostly due to low capitalisation, deluge of fake operators, non-payment of claims and the general state of the economy, the insurance sector in the last one year appears to be firming up in the area of policy reforms introduced by the Federal Government and driven by the regulator, the National Insurance Commission (NAICOM).

Predominantly, what has occupied the regulator most shortly before and after the last independence celebration has been to  improve on the financial and technical capacities of the various underwriting firms in a bid to enable them retain more big ticket risks locally.

Overtime, the local underwriters, despite the Local Content Act being in their favour have had to reluctantly cede juicy risks offshore due to their inability to indemnify such risks. Only recently, the regulatory body disclosed that in 2018 alone, the industry ceded risks worth over N10 trillion offshore.

Tier-based policy

Technically, and to strengthen the sector, the commission fathomed the risk-based supervision model designed to empower and strengthen the operators more.

The strategy dovetailed into the Tier-Based Minimum Solvency Capital (TBMSC), which was largely resisted by the operators, who deployed an aesthetic distance approach by using shareholders to nail the policy into oblivion.
The commission had proposed that beginning from January 1, 2019, the sector would operate under a new Tier-Based Minimum Solvency Capital (TBMSC) consisting of Tier-1, Tier-2 and Tier-3.

According to the commission, the essence was to deepen the sector through the application of certain reform measures such as the Market Development & Restructuring Initiative (MDRI).

The model was also planned to strengthen the industry and also make it possible for all the operators to concentrate in areas of their strength so as not to run into crisis in the event of claims payment, or underprice risks just to be seen as part of the system.

Good enough, the soft landing came  about 11 years after the first recapitalisation and barely two years after a former Minister of Finance, Mrs. Kemi Adeosun, said the sector was due for another round of capitalisation.

From the last recapitalisation exercise in 2007, the operators were mandated to increase their capital base for life, non-life and composite firms from the initial N150 million, N200 million and N350 million to N2 billion, N3 billion, and N5 billion, respectively while the reinsurers were asked to recapitalise from N350 million to N10billion.


However, for the TBMSC, which eventually got scrapped due to oppositions from operators, composite insurance companies interested in playing in the Tier 1 category were expected to increase their funds from N5 billion to N15 billion, those interested in the same tier but operating life insurance business were to upgrade their capital base from N2 billion to N6 billion, while non-life insurers planning to play in this tier were expected to raise theirs from N3 billion to N9 billion.

Defending the initiative, the immediate past Commissioner for Insurance, Alhaji Mohammed Kari, who also exited the office within the period, said the commission was not withdrawing any operational licence, but ensuring that each insurer had adequate capital to absorb the risks it was taking.
He explained that the recapitalisation became desirable as inflation and interest rates had soared in the last 10 years, while insurers still operated with the same capital base since 2007, adding that the initiative would enhance soundness and profitability of insurers through optimal capitalisation.

According to him, “interest rate has gone from single to double digit, inflation has risen over time and with many macroeconomic and institutional factors on the upward trend, yet the industry still maintained the same capitalisation in the last 10 years. So, it is desirable for operators to now choose which tier they want to operate in.

“Some companies are finding it difficult to fulfil obligations to their policyholders and shareholders because they are carrying risks above their limits.

“We have gotten to the stage where you will no longer acquire any business with the capital you have.  The adoption of RBS varies from jurisdiction to jurisdiction.”

Operator’s position
Commenting on the initiative, the management of FBN Insurance Group (Life and General) described it as the best thing to have happened to the industry in a long time.

According to the Managing Director, FBN Insurance Limited, Mr Val Ojumah, “we believe it is one of the best things to have happened in Nigeria. Some of the operators are fringe players, and for that reason we have all suffered from all sorts of malpractice perpetrated by them. Some are struggling, and for that reason, they do whatever to survive. This has brought collective shame to the industry.

“We view the regulator’s position as something to encourage operators to take risks in accordance with their financial strength. Out of 50 companies, how many are really operating? These are some of the things new regulations will address.
Not done with its desire to bequeath a stronger insurance sector to the country, Kari, before leaving office a few months ago, designed a more robust recapitalisation programme for the operators, which they are currently processing with utmost diligence without opposition.
According to the circular detailing the new financial position, life Insurance companies are to jack-up their capital from N2 billion to N8 billion; general business operators from N3 billion to N10 billion; composite business, N5 billion to N18 billion and reinsurance, N10 billion to N20 billion.
The move to get the sector recapitalised, according to industry observers, remains a positive development as the last exercise was carried out over 10 years ago despite the fact that the operators now carry more risks.
Motorists’ USSD code
Before the recapitalization notice, the insurance sector had enhanced its project, Nigerian Insurance Industry Database (NIID), with the unveiling of the Unstructured Supplementary Service Data (USSD) code to enable motorists verify their insurance documents in order to know if they are genuine or fake.
IFRS9 for insurers

Another major event during the period was the disclosure by the industry regulator about efforts being made to ensure smooth and uniform adoption of the International Financial Reporting Standard 9 by underwriters.

Financial inclusion

For the pension industry, it was all about the successful launch of the micro-pension plan by the Federal Government as driven by the National Pension Commission (PenCom).

At the launch in Abuja, President Muhammadu Buhari  directed the Financial System Strategy 2020 to support the initiative within the framework of its activities especially as it relates to financial inclusion.

The MPP was designed to capture informal sector workers such as traders, farmers, mechanics, drivers, tailors and small businesses with less than three employees that were not fully captured in the mandatory contributory pension for the formal sector.
“Today, millions of traders, farmers and other entrepreneurs in various cottage industries are completely excluded from the different pension programmes in existence,” the president said.

Last line

From developments in the sectors in the last one year, it is obvious that both are consolidating in their own sphere to strong and reliable arms in the country’s financial institution’s segment. This, obviously, has been made possible through the instrumentalities of the Federal Government by acceding to recommendations from the regulators.

From the current standpoint, all indications point to the fact that as Nigeria would be celebrating its 59th independence anniversary in 2020, Nigeria would be boasting of a stronger insurance institution just as its financial inclusion target would have also hit some reasonable mark as a good number of unreached Nigerians would have been included.

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