The National Insurance Commission (NAICOM) on Wednesday announced a new three -tier based recapitalization regime for the insurance industry.

The Commission said that the initiative was part of moves to strengthen operating entities and through optimal capitalization, stabilize the nation’s financial system.

The Commissioner for Insurance, Mohammed Kari, while speaking at the unveiling of the new recapitalization regime in Lagos, explained that there would be specific capital requirements for each tier level, based on risk classification for each tier just as there will be no mandatory injection of fresh capital by insurers.

Kari, who was represented by the Director, Supervision of the regulatory institution, Mr. Barineka Thompson, explained that there would be no cancellation of licence of any operator but subject to solvency control levels.

According to him, the latest policy measure would open up licensing window to interested investors at higher tier level, bring about restructuring of capital resources for improved liquidity and claims settlement.

The NAICOM boss disclosed that composite insurance companies who are now interested to play in the Tier 1 category were expected to increase their capitalisation from N5 billion to N15 billion, while those interested in the same tier but operating life business were also required to upgrade their capital base from N2 billion to N6 billion.

The regulator also disclosed that non-life insurers planning to play in the Tier 1 category would need to increase their capitalisation from N3 billion to N9 billion.

Also, composite insurers desirous of operating in Tier 2 are expected to increase their capitalization to N7.5 billion, non-life operators to N4.5 billion, while life operators under Tier 2 category are expected to increase capitalisation to 3 billion.

Under the new recapitalization regime, insurers willing to play in the lowest tier, which is Tier 3, are expected to maintain the current capital base of the Insurance industry just as Non Life insurance firms in Tier 3 are required to maintain N3 billion; Life Insurance operators, N2 billion and Composite insurers N5 billion capitalization.

Kari said that the recapitalisation became desirable for the industry given the inflationary and interest rate regime that have increased over the past decade, adding that the new recapitalization regime would ensure that operators have adequate capital to absorb the risks they cover.

The Commissioner said: ” Interest rate has gone from single to double digit, interest rate has increased over time and with many macroeconomic and institutional factors on the upward trends, while the industry still maintain the same capitalisation in the last 10 years.

“So, it is desirable for operators to now choose which tier they wants to operate in. Some companies are finding it difficult to fulfill their obligations to their policyholders and shareholders because they are carrying risks above their limits,” he added.

Kari explained that the introduction of proportionate capital that supports the nature, scale and complexity of the business conducted by insurers, noting that under the latest measure, there is no cancellation of licence, but operators will be subjected to solvency control levels and no mandatory injection of fresh capital by insurers.

The industry regulator also pointed out that the difference between the three tiers remained in the nature of businesses insurers would be allowed to underwrite, hinted that the regulatory guidelines would be issued on 3rd of August, 2018.

The insurance expert disclosed that NAICOM had concluded to hold awareness sessions with board members and key management staff of insurance companies from August 6-10 this year.

This is even as he hinted that the Commission also planned to release the transition guidelines by August 3, 2018, issuance of notification letter on assessed capital level from August 13 to 17, 2018 and submission of board’s decision by operators to NAICOM not later than September 14, 2018.