The issue of capital requirement for insurance and reinsurance companies has finally come to a rest. Though the rest was set by the Senate of the 10th national Assembly, it’s expected that in the spirit of concurrence the House of Representatives will uphold and, finally the President will accent to the bill. From then on, insurance operators and interest groups will no longer stall the powers of the National Insurance Commission to raise capital as is required by market and economic trends.
Crossing the hurdle of raising capital has almost always failed the Commission. When this bill becomes law that ceases and the Commission will require all insurers and reinsurers to comply with the new capital requirement which sets N25bn for non-life insurance business, N15bn for life assurance business and N45bn for reinsurance business. For the prescribed levels, it will be matched to the risk-based capital and will be “determined from time to time by the Commission.” Armed with this the challenge by either the operators or interest groups has been permanently erased. However, in applying the powers that it has in determining the capital required the Commission has to fall back on certain requirements already earned by the company in the line of doing business. Its not a rule by the thumb. Therefore, in determining the risk-based capital required, the bill states that the Insurance Commission shall take into consideration the capital for insurance risk, market risk, credit risk, and operational risk.
The coast is now clear for capital requirements for operating as a non-life, life assurance and reinsurer in Nigeria. In the capital requirement enshrined in the bill, a person shall not carry on insurance business in Nigeria unless the insurer has and maintains, while carrying on that business, certain minimum capital.
“In the case of non-life insurance business, the higher of — (i) ₦25,000,000,000.00, or risk-based capital determined from time to time by the Commission
“In the case of life assurance business, the higher of (i) ₦15,000,000,000.00,or risk-based capital determined from time to time by the Commission.
“In the case of reinsurance business, the higher of (i) ₦45,000,000,000.00, and risk-based capital determined from time to time by the Commission,” the bill partly reads.
The bill also proposes a penalty of N25 million for individuals found operating unlicensed insurance businesses in the country.
The passage follows the adoption of the report by the Committee on Banking, Insurance, and Other Financial Institutions during Tuesday’s plenary session.
The report was presented by the committee’s chairman, Senator Abiru Adetokunbo (APC-Lagos). According to the bill, any individual who engages in insurance business without the proper licensing will be liable to a fine of N25 million, a prison term of two years, or both.
Adetokunbo told lawmakers that the bill aims to consolidate various existing laws regulating insurance businesses in Nigeria, including the Insurance Act of 2003, the Marine Insurance Act, the Motor Vehicles Third Party Insurance Act, the National Insurance Corporation Act, and the Nigerian Reinsurance Corporation Act.
According to Adetokunbo, the bill creates a robust legal and regulatory framework for the insurance sector, enabling it to contribute positively to Nigeria’s financial sector. “The current insurance legislation is over two decades old and lacks provisions to address contemporary challenges and foster growth and innovation,” he said, adding that the former law hampered the industry’s global competitiveness.
He urged the Senate to pass the bill in the interest of all types of insurance initiatives in Nigeria. However, Senator Jimoh Ibrahim (APC-Ondo) opposed the passage of the bill, highlighting that “the proposed minimum capital requirement of N45 billion for reinsurance businesses” should be removed due to Nigeria’s current economic situation. His view was not sustained.
But the Deputy Senate President, Barau Jibrin, cleared that “This Act, once it receives concurrence from the House of Representatives and assent from the President, will significantly contribute to shaping our economy for the better.”
Defending the position of the bill on capital requirement without deflating it for any segment of the market with particular reference to reinsurance business Jibrin said, “Economies are dynamic and constantly changing, so it is incumbent upon the authorities of every nation to update their legislation to align with contemporary realities.
“This is precisely what the passage of this legislation aims to achieve: to restructure the entire insurance ecosystem in line with current realities. I am confident that the country will benefit greatly when the law is eventually assented to.”
The fine in the passed bill is a 100-fold increase from the N250,000 fine for a similar offense in the Nigerian Insurance Act of 2003.
For companies or firms found guilty of the same offense, the penalty doubles, with principal officers of the organization facing fines of N50 million each, alongside the possibility of a two-year prison sentence.
The Senate in July 2024 passed the for a second reading, to reform the insurance sector in Nigeria. In determining the risk-based capital required, the bill states that the Insurance Commission shall take into consideration the capital for insurance risk, market risk, credit risk, and operational risk.
