1 day Ago By Our Correspondents
LAGOS – Despite the gains attributable to high foreign exchange rate now hovering around N1,720/U$ which aided the soaring insurance revenue, the depreciating value of the local currency has impacted negatively on the operating capital of insurance operators. Daily Independent finding has revealed. Currently, the capital base of a life insurance provider; general business portfolio; composite operator as well as reinsurance firm by law stands at N2billion; N3billion; N5billion and N10billion respectively.
Although, these companies, based on the proposed capital by the National Insurance Commission (NAICOM), have on their jostled to raise their capital based of N8billion for a Life business company, N10billion for general business N18billion and N20billion for composite and reinsurance respectively, but the ever dwindling foreign exchange on the open window transaction still make nonsense of the efforts. A paidup capital of N2billion against an exchange rate of N1,650/ USD, for instance, would deplete the value of the capital to about N1.2miillion in real terms.
Similarly, N10billion capital will translate to about N6million and vice versa. The implication of this being that the current capital layout on the strength of the local currency, the Naira is no longer adequate and sustainable for a company to pick up high ticket business in oil and gas or aviation, unlike when the exchange rate was lower, they noted. However, the high foreign exchanges have been considered a blessing to the operators given the fact that a US$3million transaction would raise liquidity inflow to over N500million premium income in one swoop, the very reason they have made more money in premium collection.
Daily Independent also noted that in spite the purported gains realised from the forex transactions, back home, the high cost of operations, claims management and other auxiliary obligations are eating deep into their cash inflows as it is evident in their respective balance sheets. Cost of managing claims, for instance, has gone up astronomically, three times over, due to inflation. Replacement of spares for a customer’s car could be three or four times higher than the actual premium the insured had paid.
Same goes to cost of powering the business day-on-day which has threatened most business entities and forces some to close doors. All these put together is putting pressures on the value of the capital of insurance companies and their financials as services providers. The Consolidated Insurance Bill 2024 at the National Assembly, however, proposes N15billion; N25billion; and N40billion respectively for different categories of companies’ portfolios.
This will be backed with the NAICOM’s risk based supervision/capital regime where an insurer will write risk according to its risk appetite. Not unmindful of the situation, the NAICOM has expressed its concern over the soundness of most insurance companies. For the newly appointed executive management of the Commission led by Mr Segun Omosehin, policyholders are at the center of its harmonised five-point agenda noting that only a solvent insurer can meet its obligation to customers, deepen penetration, pay claims promptly and deploy technology to drive processes among other financial charges.
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