Posted by From Kunle Aderinokun in Abuja and Duru Nnamdi in Lagos on
The Federal Gover-nment yesterday directed insurance companies operating in the country to shore up their paid-up capital in different categories, namely life, non-life/general and re-insurance.
* FG releases N100bn allocation for third quarter
The Federal Gover-nment yesterday directed insurance companies operating in the country to shore up their paid-up capital in different categories, namely life, non-life/general and re-insurance.
For companies offering life insurance, the government jerked up the capital base to N2 billion from the current N150 million and increased that of non-life/general and re-insurance companies to N3billion and N10 billion from N200 million and N350 million respectively.
The companies are expected to meet the set capital requirements within a period of 18 months starting September 1 and ending February 28, 2007. The present levels of capital base in the industry were last reviewed in 2003.
Making the disclosure yesterday in Abuja, Finance Minister Ngozi Okonjo-Iweala proposed mergers and acquisition of the companies with a view to meeting the set requirements.
She said that the upward review was necessary because the insurance industry has become highly undercapitalized and as a result could not perform its role in the economy.
She noted that with the increased capital base, the companies would be able to do more business and add value to the economy. She said the insurance companies that are losing businesses in the oil sector due to inadequate capital would be able to do better and reach out to more Nigerians.
Okonjo-Iweala who was accompanied by the Accountant-General of the Federation (AGF), Alhaji Ibrahim Dankwambo; Director-General, Budget Office of the Federation, Mr. Olabode Agusto and Director-General, National Insurance Commission (NAICOM), Mr. Emmanuel Chukwulozie, said that before the decision to increase the capital base was reached, extensive consultations were made and series of meetings held both in Lagos and Abuja with operators of the insurance industry.
She said that the decision was delayed for nine months so as to get enough inputs of the necessary stakeholders, noting that the government at a point had to revise its earlier projections.
On his part, Chukwulozie said Section 9 of the Insurance Act of 2003 empowered NAICOM to review the capital base of insurance companies from time to time.
He said the Act mandated insurance companies to deposit 10 per cent of the paid-up capital at the Central Bank of Nigeria.
Prescribed capitalisation for insurance operators dated back to 1961 when the Federal Government enacted the Insurance Companies Act, 1961. This Act prescribed a minimum statutory deposit of £25,000 on life and general business insurers and £50,000 on composite insurers.
With the Insurance Act, 1976, government again tinkered with insurers' capital base, imposing a N300,000 minimum capital base for general business underwriters, N500,000 for life insurers, N800,000 for composite insurers, N3 million for general business reinsurers and N5 million for life reinsurers respectively. This Act also slammed a mandatory deposit of N25,000 on insurance brokers and loss adjusters.
The Insurance Act, 1991 was the third attempt by government to increase the capital base of insurance companies. It raised the minimum capitalisation for life and general business (now non-life) insurers to N5 million and mandated composite insurers and reinsurers to have in place a capital base of at least N10 million and N50 million respectively.
The Insurance Act, 1997 further raised the stakes for both life and general business underwriters to N20 million and N40 million for composite insurers.
For comprehensive insurers underwriting special risks in addition to general business only, N70 million was prescribed while those adding life business to their portfolio, N90 million was prescribed. Reinsurers were required to have a capital base of at least N150 million. It also introduced a capital base of at least N5 million for insurance brokers and loss adjusters and the solvency test for insurers.
The Insurance Act, 2003 prescribed a N150 million capitalisation on life insurers and N200 million capital base on non-life underwriters. Composite insurers and reinsurance companies were to beef their capital base to N350 million.
It further empowered NAICOM to subsequently raise the capital base of insurance operators as it deems fit without consultation providing, "the Commission may increase from time to time the amount of minimum paid-up share capital stated in subsection 1".
Okonjo-Iweala who spoke on other issues yesterday said the Federal Government has released N100 billion third quarter capital allocations to spending ministries, departments and agencies (MDA) to fund their projects.
Similarly, the government disclosed that revenue in the excess crude account domiciled at the CBN grossed $10,270,653,337.55 as at the end of August.
Okonjo-Iweala while announcing the new capital allocation figures said N65 billion out of the N145.2 billion released for the first and second quarters remained unused, adding that government had given authorization to incur expenses (AIEs) amounting to N77 billion in the two quarters.
She said the government was making timely release of the allocation so that implementation of the capital budget would be hitch-free.
The finance minister said the Federal Government has disbursed a total of N119 billion to subsidize the prices of petroleum products this year. She said that the Nigeria National Petroleum Corporation (NNPC) has already spent a total of N112 billion on subsidy. This, according to her, was in addition to another N7billion from the palliative committee set up to cushion the effect of the increase in pump prices of petroleum products. According to her, "we had put down N5 billion in addition to N2 billion for National Poverty Alleviation Programme , which had been used to finance micro-finance activities and is going very well."
She said that N5 billion was given out as N2 billion to subsidize kerosene and N3 billion as matching grant for 36 states to procure buses.
She said the money for the palliative has always been there but a state has to put down N100 million before it could draw down on the N3 billion.