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Insurance recapitalisation hanging in the balance

As the coronavirus pandemic keeps wrecking the world’s economy, and causing downtrends in stocks as well as shutting down economies, Nigerian insurers are worried that the industry recapitalisation exercise will be thwarted.

Already, insurance operators have expressed concern that the global pandemic would affect sourcing of funds for ongoing recapitalisation drive, as inflows for the process are usually garnered from local and global investors with economies falling with global recession imminent.

Investigations by Daily Sun revealed that operators have halted their various recapitalisation plans to join in the war against COVID-19, because according to them; if it persists any longer than projected, the sector will surely have a fair share of its consequences.

From indications arising from the coronavirus disruption of the business environment, it is likely that the recapitalisation deadline will again be extended.

President of the Chartered Insurance Institute of Nigeria (CIIN), Eddie Efekoha, who spoke recently in an interview with Channel Television, the recapitalisation exercise timeline will be extended but will be accomplished notwithstanding because it is beneficial to the industry as NAICOM  has always emphasized.

Efekoha, speaking on how the sector is faring amidst the virus said: “No operator including the National Insurance Commission (NAICOM); would have thought that there would be an outbreak like this with huge impact on businesses including insurance as it has done.

“The issue is that the scope and the end of the virus is not even with anyone yet, including the Commission and this is why it proactively released regulatory forbearance meant to sustain insurance operations and shield insurance policy holders from the negative consequences that may arise during the lockdown as the nation continues the battle to contain COVID-19.

“So, NAICOM is saying; “we are aware of the ongoing coronavirus pandemic and the possible impact on recapitalisation and at the appropriate time, we will look at it” and I think this is very thoughtful of them and I commend their efforts. Originally, the recapitalisation exercise which kicked off last year, was billed to end June 2020. But  it was extended to December 2020. What I see therefore, is that the timeline will be equally extended but I do not know the scope yet as they have said the scope is not certain; there could be further palliatives or variations to it but as regards whether this recapitalisation will be seen to the end, I think it should because it is good for us.”

Efekoha added that as a result of this, the recapitalisation exercise will create room for more mergers and acquisitions since NAICOM has said much in this regard as well as stressing that, the exercise is not intend to kill any company.

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“Infact,  the regulator affirmed that all companies will survive noting; those who can make it on their own are permitted to do so and those who think business combination is the best option for them, should go ahead but should they fail, then they; the regulator will be the initiator of the consolidation process.”

On the financial impact of the pandemic on the industry, he said the industry, may not pay claims for business interruption flowing directly from the outbreak of coronavirus due to the absence of the cover in the country but the sector remains poised to respond appropriately when business interruptions occurs in line with the specified risks in policies like fire outbreak, explosion damage among others.

“The Nigeria’s insurance industry will be affected but mildly; I think for now. Affected because there is no pandemic insurance per se in Nigeria but there are few of the abroad though not popular. Most of our policies have not really been extended to disease outbreaks such as this except for life insurance operations where you will most likely have cases of covers being granted and there are no specific exclusions.

“So, to this extend claims will be made to such persons if they suffer any risk but I do reckon that since essential services are being rendered at this moment, employees that are engaged in these services  during the course of duty  and are impacted or affected by the virus will likely make claims under the Employee Compensation Act currently operated by the Nigeria Social Insurance Trust Fund (NSITF).”

He further noted that some burglars have taken advantage of the coronavirus lockdown to burgle shops of business owners who are observing the lockdown directive. In such case, if the business owners have insurance, they can be rest assured of a compensation, he said.

Efekoha stated that even though there are no insurance cover for pandemics such as COVID-19 and other infectious diseases in Nigeria, with few ones abroad, a high demand for the cover is expected to be in high demand in the coming weeks as people’s eyes would have been opened to the benefits of insurance.

“In the days, months and years ahead, we expect insurance coverage for pandemics and other infectious outbreaks to be in high demand and the insurance industry would be expected to come up with an appropriate response and when it is done, the insuring public would be made aware.”

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Speaking with Daily Sun earlier, the Managing Director/CEO, African Alliance Insurance, Funmi Omo, said: “Naturally, the slump in global crude oil, world recession (technically), economic meltdown and interest rate crash will result in low drive for investments because the economic indices will not stimulate investments and economic growth.

“But as per recapitalisation, plans have gone very far before the pandemic of Covid-19 erupted and so, it is not expected to impact on recapitalisation except the pandemic is not arrested within a short time frame. That to me is doubtful. The virus as like every other virus has a lifespan. The only thing is that within the timeframe, its impact will be far-reaching on economic growth”, Omo said.

For his part, the Managing Director/CEO, Universal Insurance Plc, Ben Ujuatuonu, said it is no longer a secret that the global economy as well as the local economy have been affected by this epidemic, because the world is now a global village.

“With companies closing down globally and having financial challenges, it will be difficult to get Foreign Direct Investment (FDI) into the Nigerian insurance industry. Companies that wanted to invest in Nigeria before now, are, by themselves needing financial bailout. So, the recapitalisation exercise is going to be tough. Even, if the investors are to come, the closure of the two international airports will prevent their entry, at least for now,” he pointed out.

The next option, he said, is to look into the local market for funding, but that the reality is; most of these local investors might not have that financial muscle to invest now, if the virus continues to spread in the next one month.

“The capital market has been down for the past two to three weeks. So, where else will the funding comes from? Its going to be a challenging year for insurance operators, no doubt, however, I don’t see the regulator shifting the deadline again,” Ujuatuonu said.


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