House of Representatives has directed the National Insurance Commission (NAICOM) to suspend the December 31, 2020 deadline given to Insurance and Reinsurance companies in Nigeria.
The directive by NAICOM is to increase the companies minimum paid-up capital for six months beginning from January 2021 as a way of cushioning the effect of the Covid-19 pandemic on the sector.
The House resolution followed a motion of urgent public importance sponsored by Hon. Benjamin Kalu on the need to suspend the proposed recapitalisation of insurance companies, insurance intermediaries and other players in the insurance sector in view of the Covid-19 pandemic and the current economic recession being experienced in the country.
Hon. Kalu recalled that the law establishing the NAICOM empower the body to regulate the insurance sector in the country and to prescribe minimum paid-up share capital for insurance companies and intermediaries.
He reminded his colleagues that the commission issued a Circular No. NAICOM /DPR/CIR/25/2019 dated May 20, 2019, prescribing a minimum paid-up share capital for insurance and reinsurance companies and effectively increased the minimum paid-up share capital for insurance and reinsurance companies.
According to him, the original deadline for the minimum paid-up share capital was 29 May 2019 for new companies, while, 30 June 2020 was to apply to existing companies, adding that “the changes to the minimum paid-up share capital were as follows Life Insurance N2 billion to N8 billion, General N3 billion to N10 billion, Composite N5 billion to N18 billion and Reinsurance N10 billion to N20 billion. This was later moved to 31 December 2020”.
He argued that as a result of the COVID-19 pandemic, the deadline was moved by NAICOM, vide Circular NAICOM/DPR/CIR/25-04/2020 and dated 3 June 2020 and introduced a two-phased recapitalisation programme which stated that 50 percent of the minimum paid-up share capital for insurance companies must be met by 31 December 2020 and 60 percent for reinsurance companies must be met on the same date.
He disclosed that the circular also states that total compliance with the total minimum capital requirement must be achieved on or before 30 September 2021.
Kalu stressed that in addition to the negative economic impact of the COVID 19 pandemic, the Nigerian has officially announced the second round of recession which signifies that there will be a significant slowdown in economic activities and the liquidity position of both the government and businesses are seriously impacted, albeit, negatively.
He maintained that in time like this, the best move by the government and regulators is to push more liquidity into the economy in a bid to stimulate economic activities, encourage spending and prevent job losses as well as support the indigenous businesses in the country.
He emphasised this is pertinent because “in addition to the impact of the COVID-19 pandemic, the industry was also affected by the aftermath of the ENDSARS protest in which several insured properties were affected and to this effect, most of these insurance companies have tons of liabilities to settle in order to fulfil their obligations so as not to deny the rights of these affected insured persons.”
He stressed that these are the types of fiscal, monetary and regulatory approaches that are being adopted in most countries, adding that it may not be suitable at this time for NAICOM to even proceed with its planned phased recapitalization progrmame because of the overall impact it may have on the already fragile economy and the insurance sector.
He expressed concern that if the commission was allowed to proceed with its programme as planned, it could negatively affect the economy and slow down the recovery process.
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