Sequel to its directive that mandated insurance and reinsurance firms to raise their capital base, the National Insurance Commission (NAICOM) has issued a circular, which carries a new directive.
In the circular, NAICOM directed both insurance and reinsurance firms to submit their recapitalisation plans on or before Tuesday, August 20, 2019. The regulator of insurance firms also directed firms that have decided to adopt mergers and acquisition strategy to perfect their deals 60 days to the recapitalisation deadline.
The directive: The NAICOM’s circular titled: Re: Minimum Paid Up Share Capital Policy for Insurance and Reinsurance Companies, stated that the recapitalisation plan should include among others, capital status of the companies as at the last audited financial statements, board resolution on how to comply with the directives, and detailed action plan on how the funds for the recapitalisation are to be sourced with timelines and deliverables.
Also, companies intending to seek funds from the capital market are required to submit their plan of action on a file-and-use basis, just as, “companies that intend to merge or acquire another should submit their proposal after which they must comply with Section 30 and 31 of the Insurance Act 2003.”
The Commission noted that after the submission is made, it “shall review and provide response on the submitted plans on or before September 17, 2019,” adding that the review might require meeting the Board and Management of each of the insurance companies on its recapitalisation plan.
In furtherance to the recapitalisation directive, NAICOM maintained that the minimum paid-up share capital shall be through any or a combination of the following:
- existing paid-up share capital;
- cash payment for new shares issued;
- retained earnings – capitalisation of distributed profit;
- payment in kind (other than by way of cash) for new shares issues such as properties;
- treasury bills;
- shares; and
- bonds which must be converted to cash not later than three months to the deadline for recapitalisation and share premium.
NAICOM added that the items listed could be achieved through merger and acquisition. It also said cash payment for new shares issued shall be deposited in the escrow account with the Central Bank of Nigeria (CBN), adding that deposited funds shall be released not later than 30 days after confirmation and issuance of a new licence.
The Commission posited that the shareholders’ fund as at the last date of recapitalisation for existing insurance/reinsurance companies shall not be less than the required minimum paid-up share capital.
It said payment of statutory deposit shall be in accordance with the Insurance Act 2003 and shall be made not later than 30 days to the deadline for the recapitalisation, stressing that all mergers and acquisitions shall be concluded not later than 60 days to the deadline for the recapitalisation.
The Backstory: Recall that NAICOM had recently announced an increment in the minimum paid-up share capital of insurance and reinsurance firms.
In the circular signed by NAICOM‘s Director of Policy, Pius Agboola, the Commission disclosed that the new minimum paid-up share capital requirements would become effective from the commencement date of the circular for new applications, while existing insurance and reinsurance companies shall be required to fully comply not later than Tuesday, June 30, 2020.
Source: nairametrics
