National Insurance Commission says its Risk Based Capital mantra is to ensure that insurance companies do not fail and that policyholders are not exposed.
The narrative was anchored by the Deputy Commissioner for Insurance, Technical, Usman Jankara Jimada, at the recent Media Session in Lagos, and he made it explicit that the Commission has the duty to assess insurance entities on the basis of how the risks they underwrite pose a challenge to NAICOM objective that no company fails.
Jankara said the incubating RBC would make sure companies stay in the lane of adequate capital to cushion risks underwritten relative to their exposure.
He said the process is currently at a quantitative impact study, where it collates data on the historical loss ratio over a ten year period and analyse the extent to which the capital maintained over the period was enough to meet the liabilities of risk exposure.
The ongoing study the Deputy CFI said, would enable the Commission have the picture of a situation where the capital has been inadequate and on that basis the Commission would direct the concerned company implement additional margins or ‘risk charge’ needed to enable the insurer meet the minimum capital required by the regulator.
He said companies that their risk exposure do not match the MCR would be required to do internal modeling to assess their risk charge and arrive at additional capital as the enabler to continue to provide cover for the risk assessed. Jankara said the internal assessment would inform companies own plans towards complying with RBC on an ongoing basis.
Beyond what a company own RBC assessment would do, he said the Commission would also do its own assessment, “and that is what we call the ‘tool kit’ that we are going to expose to the market that they can also use.
He reiterated that when the minimum capital a company holds is lower than required RBC, the company would be informed and there would be a space of time for the company to comply and failure would attract sanction.
“Sanction will come and NIIRA has clearly provided for that when the time stipulated to make good comes and it is not fulfilled,” he declared
The Deputy CFI made it clear that complying does not necessarily mean new funds would be injected. He offered insight into what could happen for instance, if an aviation, a high risk portfolio is involved. If the current MCR is inadequate, its either the company stops taken the risk or brings in additional capital. Otherwise, the company would have to reduce its exposure where it has shot down the option of additional capital.
