The New Minimum Capital Requirement for Insurance Companies in Nigeria and steps Insurance companies can take towards achieving the new minimum capital requirement.
The National Insurance Commission (“NAICOM”) as the principal regulatory agency in the Nigerian Insurance Industry has the power to administer, supervise, regulate and control the business of insurance in Nigeria. The Commission establishes the standards for the conduct of insurance business, including stipulating and reviewing the minimum paid-up share capital for insurance companies.
In 2019, NAICOM published a circular stipulating an increase in the Minimum Paid-up Share Capital for Insurance and Reinsurance Companies in Nigeria. The new paid up share capital requirement became immediately applicable to all new companies applying to NAICOM for the registration of insurance business in Nigeria. However, existing insurance and reinsurance companies must comply with the new requirements no later than June 30, 2020.
The changes also affect the amounts statutorily required to be deposited with the Central Bank of Nigeria by insurance companies under Section 10 of the Insurance Act (statutory deposit). The statutory deposit for companies intending to commence insurance business in Nigeria is 50% of the minimum required paid-up share capital, while the statutory deposit for existing insurers is 10%.
According to NAICOM, The minimum paid up share capital shall be derived through any or a combination of the following:
1.Existing paid up share capital
2.Cash payment for new shares issued.
3. Retained Earnings – Capitalization of undistributed profits
4. Payment in kind (other than by way of cash) for new shares issued such as properties, T-Bills, shares, Bonds which must be converted to cash not later than three (3) months to the deadline for recapitalization;
5. Share premium.
The recapitalization efforts of insurance companies can be achieved through merger and acquisition, private equity, IPO, rights issue, private placement etc.
In the process of compliance with this new requirement, Insurance companies must seek legal advice on the appropriate procedure to adopt and maximizing necessary opportunities.