Recapitalisation battle: Insurers auction real properties to beat deadline

Recapitalisation battle: Insurers auction real properties to beat deadline

•NAICOM extends ‘olive branch’ to un-recapitalised firms

12th March 2020

Recapitalisation battle: Insurers auction real properties to beat deadline

Chiamaka Ajeamo,
With nine months to the December 31, 2020, recapitalisation deadline of the National Insurance Commission (NAICOM), insurance firms are now racing against time and not relenting in the effort to recapitalise to stay in business.

Recent investigations revealed that several operators are presently being forced to offload their real estate properties to gather funds to shore up their capital base aside the support from shareholders and other recapitalisation plans.

According to industry sources, real estate properties are not acceptable as capital in the on-going recapitalisation process hence, the major reason insurers who are rich in real estate investment are selling off some of their assets to get cash to meet the new minimum paid- up share capital requirement.

It was however disheartening to discover that due to the saturation of the real estate business in the country, many operators are finding it difficult to get buyers for the various assets put up for sales.

With the likes of Cornerstone Insurance Plc, fortunate to get buyers for its property that has yielded billions of naira in its recapitalisation drive, the story is different for other companies who are still seeking for clients.

Daily Sun learnt that Niger Insurance and AXA Mansard Insurance are allegedly still searching for buyers to acquire some of their real estate properties.

Commenting on the development, the Group Managing Director/CEO, Cornerstone Insurance Plc, Ganiyu Musa, said his company wanted to keep its property for a long term but was compelled to let go its office building after it was discovered that real estate investment was not admissible in the ongoing recapitalisation exercise of the industry.

Musa said:“Of course, our original intention was to hold it for the long term but shortly after we completed it, NAICOM then came up with the recapitalisation programme and unfortunately, one of the provisions of the exercise is that investments in properties would not be allowed as admissible asset.

“So, we are now in a situation where we have invested about N4 billion of our funds and the regulator is saying, ‘Oh sorry! This N4 billion will not count.’ We took the big decision to sell the property which we did at a very handsome price.

“And just in one fell swoop, it resolved many issues. We now have a significant amount of liquidity, we do not have the headache of recapitalisation and we have done what the regulator wants, which is to convert any property to cash.”

For his part, the Acting Commissioner of Insurance, Sunday Thomas, at an event in Lagos disclosed how some insurers had engaged the services of a consultant to pressure the commission into lowering rules on non-admissibility of properties as assets in the on-going recapitalisation exercise however, the commission turned down the lobby based on its commitment to ensure there is no setbacks in the recapitalisation journey.

Thomas noted that there are companies today that are in distress not because they do not have the assets to match their liabilities, but the structure of the assets is ineffective.

“So, is it that we do not recognise the nature of our business? It is amazing, as some people still say we do not know why NAICOM should restrict our investments in property. The industry mobilised Financial Market Dealers Quotations (FMDQ) to appeal to us to loosen the provision of the law.

“It must not be done that way, because the fund belongs to people. We have companies that have put so much in properties, but we all know the state of the property market presently. We should ask ourselves how easily we can realise funds from these properties”, Thomas expressed.

Meanwhile, NAICOM has said it will be would be extending an ‘olive branch’ to seemingly un-recapitalised companies as the commission do not want any insurance firm to be liquidated after the recapitalisation.

Thomas, said this at the Chartered Insurance Institute of Nigeria (CIIN) 2020 Business Outlook in Lagos, that the commission would offer regulatory forbearance which would provide an opportunity for un-recapitalised firms to team up together to enable them remain afloat.

He maintained that recapitalisation is necessary because when the industry is stabilised, it would help other sectors, stressing that the commission would provide an orderly exit for un-recapitalised companies.

He noted that liquidation of firms often turns out to be challenging to handle due to issues around it and that it never favours both the regulator and operators. Thus, NAICOM is playing ‘mother hen’ to companies by refraining from executing its order on the recapitalisation exercise, where it stipulated that any company that fails to meet up with the deadline would lose its operating license.

He disclosed that the commission will issue guidance note on recapitalisation by the end of first quarter 2020.

Thomas, justifying the reasons for recapitalisation, listed several factors to include: risks arising from macro-economic environment, investment and financial risks, poor risk analysis, impairment of certain investments; effect of IFRS on fair value assessment; mismatched assets and liabilities; insufficient liquidity; quality of human capital, effect of risks from governance and risk management structure among others.

He added that the above identified needs made it expedient to increase the paid-up share capital of insurance and reinsurance companies from the existing level.

Speaking on roles of the commission in the ongoing recapitalisation, he said NAICOM as a regulator would ensure transparency and certainty of the process, orderliness of the recapitalisation process, ensure an enabling environment with palliatives and level playing field which will be fair to all.

Other functions, according to him, include; ensuring that recapitalised companies are liquid; safety of funds raised, payment into Escrow Account; orderly exit of un-recapitalised companies and efficient resolution of pre and post-recapitalisation governance/conflicts.

Thomas stressed that the commission is committed to sustainable growth in order to enhance the stability of the industry in Nigeria.

“NAICOM, is planning a palliative mechanism for underwriters, who could not recapitalise before the December 31st, 2020 deadline. The palliative known as regulatory forbearance, would enable the un-recapitalised firms form a consortium, by pooling all their resources together to form a strong single entity”.

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