The Nigerian Insurers Association (NIA) has recommended introduction of Risk Based Capital in the Consolidated Insurance Bill.
The Association considers it as the right capital model for the Insurance industry in order to align the Nigerian Insurance market with International best practice and reposition the industry for accelerated growth and development.
The chairman of the association, Ganiyu Musa, in a presentation at the two-day public hearing on Consolidated Insurance Bill 2020 organized by the House of Representatives Committee on Insurance and Actuarial Matters in Abuja recently stated that in adopting Risk based Capital adequacy template, the Association took cognizance of the need to consider insurance risk, market risk, credit risk, and operational risk as well as the need to apply such capital charges on assets and liabilities (all capital resources inclusive).
He hinged the Association’s position on the 2013 IMF Report on the Nigerian Insurance Industry which prescribed the risk based capital model as most suitable for the Nigerian Insurance market.
According to him, the IMF report was duly acknowledged and admitted by the National Insurance Commission (NAICOM) as the right capital framework for the market as it seeks to limit the capital required by operators to the level of risks they can carry.
When the Bill is eventually signed into law in line with this proposal, it will lay to rest, the contentious issue of the definition of capital which has been a major point of the Association’s engagements with the Commission during the ongoing recapitalization exercise.
“We are convinced that risk based capital adequacy template is the best fit for the insurance industry in Nigeria especially given the fact that the 2013 IMF Report has prescribed it and the Commission agreed with it.” he stated.
This will also align the definition of Insurance with the various positions such as IAIS recommendations, ICP 17 on Capital Adequacy; European Union Directives On Minimum Capital Requirement; OSSFI (Canada); APRA (Australia Prudential Regulatory Authority); SAM (Solvency Assessment Management) South Africa; Kenyan Model and Malaysian Model.
The IMF peer review report on the Insurance industry in Nigeria 2013, observed that the Nigeria Insurance Industry was over-capitalized relative to other developing countries and recommended that the regulator should review the excessive capital requirement when adopting a risk based capital framework.
Speaking on the above, Director-General of the Association, Mrs. Yetunde Ilori emphasized that risk based capital is the direction to go if the insurance industry is to attract the right investment and increase insurance contribution to the Gross Domestic Product (GDP).
She expressed the hope that that given the fact that the insurance companies are searching for funds to capitalize their operations, adopting this definition will make the insurance industry in Nigeria attractive to investors and save about N77billion payout as cost of recapitalizing.
The 2020 Consolidated Insurance Bill is expected to address some of the gaps in the 2003 Insurance Act and reposition the industry to enable it attain its full potentials.
The House also took presentations from other stakeholders such as National Insurance Commission (NAICOM), The Nigerian Council of Registered Insurance Brokers (NCRIB), Chartered Insurance Institute of Nigeria (CIIN), Institute of Loss Adjusters (ILAN), Association of Registered Insurance Agents of Nigeria (ARIAN), Federal Ministry of Finance, Budget and National Planning, Federal Ministry of Justice, and Road Transport Employers Association among others.