Insurance…
Some stakeholders in the insurance sector have expressed mixed feelings about the proposed recapitalization, suggesting that while it may create new barriers to entry, it could also bring benefits to the industry as a whole.
In discussions with The PUNCH, Edwin Igbiti, the immediate past President of the Chartered Insurance Institute of Nigeria, highlighted that the initiative could impose additional challenges for new entrants in a market already grappling with low penetration rates. He emphasized that, compared to other African nations, Nigeria has the highest base in terms of industry size.
Igbiti argued that while capital is necessary for operating within the sector, excessive capital can be counterproductive. He explained that businesses are generally expected to generate turnover that is approximately ten times their capital; failing to achieve this indicates that the capital is not being effectively utilized, which poses a significant challenge.
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Igbiti further pointed out that the issue of low penetration is closely tied to the need for inclusivity in the market. In the retail segment, he noted, substantial capital is not a prerequisite for success, as the focus is often on smaller insured amounts. In contrast, sectors like oil and gas or property require more significant investments. Therefore, he believes that maintaining capital within the retail segment is crucial for its growth and sustainability.
Recently, a new legislative proposal, the ‘Nigeria Insurance Industry Reform Bill 2024,’ was introduced in the Senate, aiming to raise the minimum capital requirements for insurance companies.
Sponsored by Tokunbo Abiru, the Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, along with 41 other senators, the bill proposes increasing the minimum capital for life insurance companies from N2 billion to N15 billion, and for general business from N3 billion to N25 billion.
Additionally, the capital requirement for reinsurance businesses would increase significantly from N10 billion to N45 billion. This bill has already passed its second reading in the Senate, indicating progress in the legislative process.
Igbiti speculated that the intent behind these changes might be to stimulate mergers and acquisitions within the sector, ultimately leading to the formation of stronger, more resilient firms. He believes that such consolidation could enhance the industry’s overall stability and competitiveness, allowing it to better serve the needs of the Nigerian populace.
