Only African Alliance Insurance Plc, AIICO Insurance Plc, and AXA Mansard Insurance Plc, out of the 16 companies listed on the NGX Insurance index have met the recapitalisation requirement, according to a recent report by Afrinvest Securities.
According to the report, African Alliance Insurance Plc maintained a buoyant capital base as its paid-up capital of N10.3 billion comfortably sits above the regulatory threshold for life insurers.
The report further stated that AIICO Insurance completed the issuance of its 12 for 9 bonus shares which increased the company’s paid-up capital by N10.5 billion (with an addition of 20.9bn units of shares at 50kobo each) in 2022 following shareholders’ and regulatory approval.
“Consequently, AIICO’s paid-up share capital rose to N18.3 billion slightly above the new regulatory threshold set by NAICOM for composite insurers,” said analysts at Afrinvest.
AXA Mansard Insurance completed its share reconstruction exercise which saw its nominal share value rise from 50kobo to ₦2.00 with the number of shares outstanding declining from 36.0bn units to 9.0bn units of ordinary shares.
“This effectively places the company in compliance with the recapitalisation threshold as its paid-up capital now prints at N18.0 billion,” said the analysts.
However, an analysis of the financial statement of African Alliance shows the insurer is technically insolvent as total liabilities of N50.50 billion as at December 2021 exceeds total assets of N43.88 billion, which resulted in negative shareholder’s fund of N6.62 billion.
The technical insolvency level stems from a pile of operating losses and net fair value loss on financial assets amid rising claims that swallows’ revenue.
For instance, the insurer has negative retained earnings of N33.13 billion as at December 2021.
In 2018, National Insurance Commission (NAICOM), the body that regulates insurance activities in Nigeria hiked the minimum capital requirement for insurers by 200 percent as it seeks to ensure that sector players have a very strong capital to take on more big ticket transactions.
Of course, it is expected that the new regulation will spur mergers and acquisitions as there are too many weak companies who are not liquid enough to survive the intense competitive environment.
A reform is needed because the industry is not where it is supposed to be and its contribution to the economy is abysmally poor while it lags peers in Sub-Saharan Africa in insurance density and penetration.
In ranking terms, the Nigerian insurance industry underperformed significantly, contributing a minuscule 0.02 percent to world premiums. This ranked the Nigerian insurance industry 81st (previously 71st) out of 88 countries profiled by the Swiss Re Institute in 2021.
The sector’s insurance penetration (GPW as a % of GDP) was relatively unchanged—printing at 0.3% in 2021 compared to South Africa (13.6%), Brazil (4.0%), Morocco (3.9%), India (3.8%), and Kenya (2.5%). On the other hand, the sector’s insurance density (GPW per capita) is estimated to increase marginally in 2021 to $6.3, previously from $6.0.