Nigeria: Consummations: Naicom & Insurance Industry Recapitalisation

"Law or no law, nothing says I cannot forbid a company from doing a business which he doesn't have the finances for. We have been doing it and will continue to do it. Law or no law, policy or no policy, it is an inherent duty of a regulator to do that."

• Mohammed Kari, Commissioner of Insurance and CEO, National Insurance Commission (NAICOM)¹

"There are many ways to skin a cat" - Popular proverb

Introduction

The context for the above statement by Nigeria's insurance regulator was subsequent to the litigation instituted by aggrieved shareholders of some insurance companies to stop NAICOM's implementation of its Tier-Based Minimum Solvency Capital (TBMSC) policy directive.² Announced in August 2018, TBMSC's Transitional Guidelines embodied the implementation strategy for regulatory driven recapitalisation of the insurance industry.³ The TBMSC Circular defined TBMSC as "A regulatory model designed for the application of proportionate solvency capital that support the nature, scale, complexity and risk profile of the business conducted by insurers."⁴

TBMSC was quite unique in that it did not directly purport to be a threshold capital raising directive, but its effect was geared towards that outcome. It indirectly mandated increase in the capital base of insurance companies to enhance their risk underwriting capacity,⁵ consistent with the international standards of Risk-based Solvency II model.⁶ Incidentally, a NAICOM presentation stated: "The industry, by a unanimous consensus, agreed to a desirable recapitalization at the Insurers Committee Retreat held on 15^th & 16th February, 2018 in Abeokuta" and "The ongoing efforts of the Commission to reposition the insurance industry in Nigeria for the benefit of all stakeholders therefore requires the support and cooperation of all parties to the implementation of the TBMSC regime."⁷

Such underwriting capacity enhancement aimed at: making the industry more attuned to Nigeria's current macro-economic realities; enhancing the soundness of insurers through optimal capitalisation; increasing insurance penetration rate; increasing insurance products' development; enhancing the marketing of insurance products; and reducing reinsurance risks cessions by Nigerian insurers because of their capacity constraints in underwriting big ticket risks.⁸

The TBMSC essentially classified insurers into three (3) tiers, as shown in the table below:⁹

According to Para 3 TBMSC Circular, the Risk Classification Table is as follows:

The TBMSC Circular also provided inter alia for go forward plans after the Commencement Date. For example, "the review and recertification of an insurer's Tier level shall be carried out bi-annually" and "the basis of the assessment shall be the approved annual or half year audited accounts of the insurer; and submission of a re-categorization request thereof."¹¹

TBMSC: Stakeholder Reservations and Litigation

The TBMSC which was expected to take off on January 1 2019 (with underwriters having to indicate the respective Tier they wanted to operate in by October 1 2018), raised a lot of issues: its very aggressive timeline for compliance (5 months), the potential loss of jobs from resultant merger and acquisition (M&A) activities or potential liquidation for underwriters that cannot meet up with the requirements within the stated timeline.¹² There would also be M&A challenges - harmonizing infrastructure, processes, and people of merging entities and optimally meeting the legal regulatory requirements of M&A and other forms of restructuring of insurance firms/businesses, including their cost implications.¹³

For instance, any amalgamation with any other insurer carrying on life insurance business, or covering workmen's compensation insurance would require court sanction: section 30(b)(i) Insurance Act (IA).¹⁴

It had been argued that TBMSC was ill-conceived because it downplayed technical capacity and individual business strategy of some underwriters who are comfortable playing in their niche, moreso that profitability is not synonymous with size.¹⁵ Furthermore, a school of thought believed that the TBMSC was arguably a regulatory intervention that would 'ease things up' for the leading operators, to the detriment of smaller underwriters.

This is moreso that the compliance timeline was so tight that smaller underwriters intending to comply, may already be condemned to failure in any potential fundraising efforts;¹⁶ clearly no merger could be consummated in less than five months.¹⁷ This seemed to be non-cognizant of the fact that insurers were already labouring under very negative investor perception, given the unimpressive stock performance (relative to banks for example) of listed underwriters on the stock exchange. Capital raising was not going to be an easy task, as the reality is that capital will always flow in the direction of where it would be most appreciated by way of decent returns. Investors are not short of choices and there will always be opportunity cost considerations to making investments.

Implementation could also have anti-local content impact - contrary to Paras. 4.4(e) and 4.6(a) NAICOM Prudential Guidelines - given the lower number of underwriters that could culminate from the recapitalisation process.¹⁸

These reservations in part must have been what made some stakeholders (essentially shareholders of some underwriters), file a suit against NAICOM at the Federal High Court (FHC) challenging TBMSC's proposed implementation.¹⁹ The FHC (Hassan, J.) on September 13 2018 stopped NAICOM from implementing the TBMSC pending the expiration of the 30-day pre-action notice.²⁰ In apparent compliance with the Court order, on November 23 2018, NAICOM formally cancelled the TBMSC.²¹

Can NAICOM Still Proceed with Industry Recapitalisation?

The question that arises is - does the cancellation of the TBMSC initiative stop NAICOM from exercising its regulatory powers to engineer recapitalisation of underwriters? Our short answer is in the negative. A cursory look at the IA bears out our position - indeed, the IA must have been the basis for the Commissioner's quoted statement at the beginning of this article.

Sections 9(1) and(3) IA provides a minimum paid-up share capital an insurer must maintain before it can carry out underwriting business. Failure to comply will result in the cancellation of the insurer or reinsurer's registration in respect of the category of the insurance business it operates. Notably, section 9(4) IA gives the Commission an inherent power to increase, from time to time, the amount of minimum paid-up share capital for each category of insurance business stated in section 9(1) IA.²²

It is trite that statutory powers validly exercised, will not be subject to review by the court, and vice versa. Where a discretion is exercised reasonably, the court will not upturn it, just because it would have exercised same differently; it is only unreasonable exercise of discretion that will be liable to review.²³

Furthermore, section 8(1)(b) IA empowers NAICOM to cancel registration if the insurer has failed to satisfy solvency margin requirements pursuant to section 24 IA. The solvency margin under section 24(2) IA (in pari materia withPara. 2.14, NAICOM Prudential Guidelines for Insurers and Reinsurers 2015), shall not be less than 15% of the gross premium income less reinsurance premiums paid out during the year under review or the minimum paid-up capital whichever is greater.

In the event that an insurer falls below the solvency margin, it is expected to make good the deficiency by way of cash payment into its accounts and produce evidence of compliance to NAICOM within sixty (60) days of the receipt of the directive.²⁴ Penalty for noncompliance is that the insurer will not undertake new insurance business and could be a ground for the cancellation of the insurer's registration as stipulated in section 8 IA.²⁵

The provisions highlighted above are similar to the cancelled TBMSC in that it introduced a minimum solvency margin expected from insurers and classified insurance businesses into three tiers, which will form the basis of classifying insurers and the nature of risk they can underwrite.²⁶ The mere fact that the TBMSC was cancelled does not inure the Commission from effecting the TBMSC through another means lawfully.

The foregoing means that NAICOM can act pursuant to its statutory powers to demand recapitalisation, by raising the operating capital thresholds of insurance companies. What is not permitted is to do so vide TBMSC; if a destination is not forbidden but a particular mode of getting there is, only that particular mode may not be utilised.²⁷ Thus, NAICOM can go by bus, rail or ferry if flight by air is proscribed. Examples of regulatory powers to prescribe minimum sectoral capital requirements can be seen in the banking, capital markets, services such as logistics, oil and gas, construction contractors or bidders for public contracts, etc.²⁸

From a commercial standpoint, given the regulatory desire to bolster insurance penetration in Nigeria, it would appear that increased capitalisation at this time is inescapable. Such is likely to lead to the industry receiving a breath of fresh air: global insurance players could invest as underwriters embark on capital raising or there could be outright acquisition of the smaller players. Other new investors such as private equity (PE) firms could become shareholders in underwriters and contribute their management and strategic expertise to improving operating processes and thereby profitability. In other cases, existing investors may shore up capital levels via additional investment.

Although now discontinued, TBMSC has 'served notice' on the insurance industry; thus companies that had been hesitant about capital raise previously now have no choice but to be proactive ahead of potential NAICOM action, so that they are not caught flatfooted.

Some of these issues were extensively discussed in an earlier article where Gabriel Fatokunbo opined that:

"Successful implementation of the Solvency II initiative in Nigeria, which is still at its introductory phase, will help to improve the existing risk based model insurance, consumer protection, reduce insolvency risk and account reporting etc...Achieving the feat of transformational IPR levels would involve NAICOM upgrading its policy implementation strategy especially in enforcing the compulsory insurance scheme and implementing the Solvency II model; fast tracking innovative product approval, and synergizing with the MDAs and stakeholders in the industry to educate and incentivize people who voluntarily obtain insurance cover."²⁹

Conclusion

NAICOM had, through the now cancelled TBMSC, signaled its intent to tinker with the present prescribed capital thresholds in the insurance industry, by reviewing same upwards. Given the specific statutory enablement to do so, NAICOM may impose new capital requirements, albeit it cannot by way of TBMSC, given the FHC's decision in Nwosu & 7 Ors v. NAICOM (Supra).

Incidentally, whilst some insurance stakeholders may not have been happy at regulatory induced tiering of underwriters given the 'de-marketing' implications, the banking sector seems to have accepted a form of market based (performance related) tier structure, with references being commonly made to Tier 1 and Tier 2 banks.³⁰ This is separate, albeit not unrelated, to the regulatory capital stipulations of Tier 1 and Tier 2 Capital for banks.³¹

Also, NAICOM presumably in seeking to implement any proposed capitalisation, will be more transactionally minded, for example by putting forward 'realistic' implementation timelines.

Given NAICOM's recent reluctance to issue new licenses, preferring that new entrants target existing local underwriters for acquisition,³²Para 7 TBMSC Circular is a seemingly positive signal from NAICOM to new entrants.³³ Para 7(a) and (c) provides that "a. The Commission shall from time to time pronounce [on] the availability of license in specified Tier(s)" and "New Companies shall be required to meet the [TBMSC] of the declared category of business it intends to underwrite by full injection of capital fund, at the point of registration and licensing."

Even though TBSMC has now been called off, Para 7 TBMSC Circular titled 'Requirements for New Companies' presumably offers a ray of hope that for new entrants in the near future, when NAICOM's proceeds to implement recapitalisation vide another strategy.³⁴ Indeed, NAICOM could follow the CBN example regarding capital requirements for MFBs - giving a fairly long time for current operators to comply but mandating immediate compliance by applicants for new licenses.

It bears repletion that "although now discontinued, TBMSC has 'served notice' on the insurance industry; thus companies that had been hesitant about capital raise previously now have no choice but to be proactive ahead of potential NAICOM action, so that they are not caught flatfooted." To participate in any sports competition, it is trite that that the athlete must be eligible.  

Postscript:

After we had finalised this article for further work by our production team, we were greeted today (21 May 2019) with this screaming headline: "NAICOM Raises Insurance Firms' Operating Capital by 200%"! ³⁵ The news report essentially validates all our predictions in the earlier parts of this article.³⁶ The die is now cast for compliance with this more "equitable" or "level playing field" recapitalisation initiative than the TBMSC. There would appear to be no valid basis to challenge NAICOM's new operating capital requirement for underwriters from being effective by or before the 30 June 2020 deadline. As earlier noted, we anticipate M&A transactions and other actions in response to NAICOM's stipulations.

Originally published as part of LeLaw Thought Leadership Insights at: https://lelawlegal.com/2019/08/20/consummations-naicom-insurance-industry-recapitalisation/ in May 2019.

Footnotes

1. See Modestus Anaesoronye, 'Nothing Stops Regulator from Forbidding a Company Doing Business it Has No Capital For - NAICOM', BusinessDay, 21.11.2018, p.26, also available at: https://www.pressreader.com/nigeria /business-day-nigeria/20181121/page/26/textview (accessed 21.11.2019).

2. Suit No. FHC/L/CS/1483/18 Sir Nnamdi Nwosu & 7 Ors v. NAICOM. See Nkechi Naechi, 'Court Restrain NAICOM From Implementing TBMSC', Business Today, 14.09.2018: https://businesstodayng.com/court-restrain-naicom-from-implementing-tbmsc/ (accessed 15.05.2019)

3. See NAICOM Circular dated 27.08.2018, Ref. NAICOM/DAPCIR/14/2018, 'Tier-Based Minimum Solvency Capital Policy for Insurance Companies in Nigeria' (TBMSC Circular): https://ncrib.net/web/wp-content/uploads/2018/09/ TBMSC-CIRCULAR-TRANSITION-PLAN-27_08_2018.pdf (accessed 09.05.2019).

4. Para 10(o), (p.12) TBMSC Circular. Para 10(g) also defined "Minimum solvency capital" as "The lowest regulatory capital requirements in a particular jurisdiction using the solvency margin approach, and distinct from paid-up capital, shareholders' funds or net assets."

5. This "indirect approach" was exemplified in NAICOM's stated intent that TBMSC was to have "achieved the above [stated components of Policy Thrust] without mandatorily requiring insurers to inject capital." See Para 2(j) TBMSC Circular. The "Policy Thrust" in Para 2(a) -(i) were:

1. Enabling soundness and profitability of insurers through optimal capitalization
2. Support the stability of the financial system and increase insurance contribution to the nation's Gross Domestic Product
3. To limit significant systemic risks and build confidence in the insurance industry while ensuring the stability of the insurance sector.
4. The application of proportionate capital that support the nature, size, complexity and risk profile of the business conducted by insurers.
5. Introduces a 3 -Tier-Based Minimum Solvency Capital (TBMSC) model.
6. Specifies capital requirement for each Tier Levels, based on risk classification for each Tiers.
7. Introduces solvency control levels as an early warning and intervention mechanism.
8. Encourage insurers to focus on the area of their strengths, encourage innovation and deepen market penetration, build investors' and public confidence in the industry, and build a stronger insurance industry.
9. To create capacity for bridging insurance gap, optimize local retention and minimize capital flight."

6. 'Solvency II Implementation in Nigeria...Toeing the Line of Global Best Practice', Proshare, 07.06.2017: https://www.proshareng.com/news/Insurance/Solvency-II-Implementation-in-Nigeria-%EF%BF%BD%EF%BF%BD/ 35108 (accessed 03.5.2019).

7. 'The Tier Based Minimum Solvency Capital Model for Insurance Companies', NAICOM Presentation (undated), pp. 1 and 14: https://www.naicom.gov.ng/docs/publications/THE%20TBMSC%20FOR%20INSURERS%20-%20 Insurers' Comm%20-%20v2PPP%2033.pdf (accessed 15.05.2019).

8. NAICOM's rationale for TBMSC was set out in Para 1, TBMSC Circular as follows: "1 Introduction

1. The insurance industry witnessed the last recapitalization in 2005/7 and since then, the operating environment has witnessed series of turbulence and uncertainties. Also, the previous capital framework was rule-based, and risk factors of business lines within each insurance segment which vary significantly, were not considered.
2. Immediately after the 2005/7 exercise, the 2008 global financial crisis set in, with far reaching effect on the wealth of insurers. This was followed with significant upward increase in risks arising from macro-economic environment such as inflation rate, interest rate and devaluation of the national currency, and other factors. These led to increase in current value of insured assets and operating cost of insurers. Yet, the same regulatory capital continued to rule and no significant increase in shareholders' funds of many insurers.
3. As Insurers continue to take too much risk with their little capital, coupled with the twin risks arising from impairment of certain assets and inappropriate pricing of insured risks, there has been an increasing inability of many insurers to honour contractual commitments to the insured and the shareholders.
4. Guided by the provisions of extant laws and international best practice, the Commission has identified underlying trends, some of which were enumerated above: and has accordingly, considered and hereby prescribed Tier-Based Minimum Solvency Capital for insurers on the basis of their respective risk profiles and their risk management systems.
5. The National Insurance Commission ("The Commission") in pursuant of its statutory function of protecting insurance policyholders, beneficiaries and other stakeholders, has deemed it necessary to expound upon the minimum capital conditions of insurers, with the aim of providing clarity on the restriction of business activities and scope of operations of insurers to the underwriting of risks commensurate to their solvency capital level.
6. In the exercise of the powers conferred on the Commission under extant laws, it hereby issue this Circular for the introduction of the Tier-Based Minimum Solvency Capital requirements, for assessment of capital adequacy and solvency control levels of all insurance companies in Nigeria, with effect from October 1, 2018."

9. See TBMSC Circular (supra), p.3; Prior industry recapitalisations (in 2003 and 2005-2007), could provide pointers for the new recapitalisation initiative. The 2005-2007 exercise (whereby insurers were given 18 months to recapitalize), phased out non-performing insurers thereby reducing the number of insurers from 58 to 27 and increased the underwriting capacity of the merged firms.

10. This meant that any underwriter operating at current thresholds without increasing its capital will automatically be a Tier 3 player. "... [Tier 3] Life companies will only be permitted to underwrite individual life policy, health insurance, and miscellaneous insurances. Non-life companies will only underwrite fire, motor, engineering (only classes covered by compulsory insurance), general accident, agriculture and miscellaneous insurances." See Nkechi Naechi (supra). Para 5 TBMSC Circular (Basis of Assessment of Minimum Solvency Capital) provides in 5.1 (b) and (d) as follows:

"b.   Companies shall be assessed in the first instance on their approved Financial Statement for 2017, and/or, audited half year accounts for 2018. However, where a Company is yet to obtain approval for its 2017 Financial Statement, its last approved audited accounts will be used for the assessment.

1. Companies shall be assessed and placed in the appropriate Tier that their capital can accommodate for the initial Advice by the Commission."

11. Para 6.4 (a) and (b).

12.NAICOM can cancel the operating licenses of the insurers that fails to meet up with solvency margin requirement pursuant to section 8(1)(b) IA, akin to para. 2.19(b) NAICOM Prudential Guidelines.

13.Obinna Chima, 'Mergers, Acquisitions Loom in Insurance Sector', ThisDay, 03.09.2018: https://www.thisdaylive. com/index.php/2018/09/03/mergers-acquisitions-loom-in-insurance-sector/ (accessed 09.05.2019).

14. Cap I17, Laws of the Federation of Nigeria (LFN) 2004.

15. Some of the stakeholders' reported grievances was that the TBMSC was politically motivated; whilst this may not attract much weight. Whilst the time frame to comply is short which made it discriminatory and restrictive. See Victor Ahiuma-Young, 'NAICOM's New Categorisation Policy Unhealthy for Insurance Industry- NUBIFIE', Vanguard, 05.10.2018: https://www.vanguardngr.com/2018/10/naicoms-new-categorisation-policy-unhealthy-for-insurance-industry-nubifie/ (accessed 09.05.2019).

16. Note Para 6.1 (i) TBMSC Circular: "An insurer may elect to merge with one or more insurers to form a company that meets the capital requirement of the different Tiers in either or a combination of Life and Non-Life with the approval of the Commission." Para 6.1 (a) - (c) and (f) TBMSC Circular also provides:

"a. It shall be the responsibility of the Board of Directors of each Insurer to determine the risk category it wishes to operate within, provided that the insurer meets the Minimum Solvency Capital of the particular Tier.

1. All insurers shall be informed individually and by way of an Advice, of the Tier-Based Solvency Capital that apply to each, on the basis of result of its solvency test on the last approved audited accounts, at the time of raising the Advice."
2. Where in the event of an assessment falling below higher Tiers, such that an insurer does not meet the commensurate capital requirements, the insurer shall continue to service the obligations on the existing policies of the higher Tiers which are yet to expired, or arising on risks underwritten up to September 30, 2019 or until all obligations on them are exhausted, except in the case of annuity or other life businesses.
3. All insurers that do not meet Tier 1 or Tier 2 minimum solvency capital requirements but presently underwrites businesses in those Tiers, may however continue to participate in existing specific policies on facultative insurance basis up to December 31, 2019."

17. In contrast, the new recapitalisation for Microfinance banks released by the Central Bank of Nigeria (CBN) on 22.08. 2018 is expected to take effect (for current operators), from 01.04.2020, but immediately for new applicants. That is twenty (20) months' notice compared to NAICOM's five (5) months' notice. See CBN Circular dated 22.10.2018 Ref. No.FPR/DIR/GEN/CIR/07/016, 'Review of Minimum Capital Requirement for Microfinance Banks in Nigeria', 22.10.2018: https://www.cbn.gov.ng/out/2018/fprd/review%20 of%20minimum%20capital%20 requirement%20for%20mfbs%20in%20nigeria.pdf (accessed 08.05.2019).

18.Para. 4.4(e) NAICOM Prudential Guidelines enjoins a Reinsurance Broker who has been issued Letter of Authority to comply with local content requirements as may be required by NAICOM, otherwise, the responsibility lies with the Lead Insurer. Para. 4.6(a) NAICOM Prudential Guidelines provides for the requirements for Request for No Objection - "Subject to exhaustion of the capacity of the Nigerian Insurance Industry, a No Objection shall be requested in the following cases: (a) Where a risk is retained 100% locally without foreign facultative reinsurance support and the individual insurer is subsequently constrained to secure additional capacity from foreign reinsurers due to rejection/declinature from facility providers and/or pre-agreed local facultative reinsurers." See also, Ebere Nwoji, 'NAICOM Threatens to Sanction Violators of Local Content Policy', ThisDay, 28.12.2016: https://www.thisdaylive.com/index.php/2016/12/28/naicom-threatens-to-sanction-violators-of-local-content-policy/ (13.05.2019).

19.The stakeholders' class action at the FHC alleged, amongst others, that the TBMSC would: affect the business and corporate existence of insurance companies and force them to sell their shares at a lower value; force licensed insurance businesses to increase their paid up share capitals by 100% or face losing their investments. They successfully convinced the Court that if it did not intervene before the expiration of the pre-action notice, NAICOM will continue apace with implementation of the TBMSC. See Unini Chioma, 'Court Stops NAICOM from Implementing Capital Policy', The Nigerian Lawyer, 14.10.2018: https:// thenigerialawyer.com /court-stops-naicom-from-implementing-capital-policy/ (accessed 09.05.2019).

20. Cf. with several litigation by aggrieved shareholders and banks challenging the banking consolidation of the early/mid 2000s none of which was able to roll back the programme. See for example, 'Consolidation: 8 Banks Sue CBN, Soludo', Proshare, 26.04.2006: https://www.proshareng.com/news/Capital-Market/Consolidation--8-Banks-Sue-CBN,-Soludo/1077 (accessed 18.05.2019).

21. See NAICOM Circular dated 23.11.208 (Ref. NAICOM/DPR/CIR/18/2018), 'Withdrawal of Circular on Tier Based Solvency Capital Policy for Insurance Companies in Nigeria', 23.11.2018: https://www.naicom.gov.ng /docs/circulars/Withdrawal%20of%20Circular%20on%20Tier%20Based%20Solvency%20Capital.pdf (accessed 09.05. 2019). The one paragraph Withdrawal Circular stated: "Pursuant to the powers conferred by the enabling laws, the Commission hereby withdraws and cancels the Circular dated August 27, 2018 with reference number NAICOM/DAPCIR/14/2018 and titled Tier Based Solvency Capital Policy for Insurance Companies in Nigeria. This withdrawal and cancellation takes immediate effect."

22. Section 9(1) IA's capital prescriptions are as follows: Life (not less than N150 million); General (not less than N200 million); and Composite Insurance Business (not less than N350 million). The 2003 and 2007 recapitalisations were in pursuance of NAICOM's section 9 IA powers. This may also be contrasted with section 15(1)(a) NCRIB Act N148, LFN 2004 vesting the NCRIB Council with powers to ensure N5 million brokers' minimum working capital, "made up of moveable and immoveable assets and cash in proportion as the Council may provide". However, there is no direct section 9(4) IA equivalent entitling the Council to raise the minimum working capital threshold prescribed in section 15(1)(a) NCRIB Act. For more details, see Gabriel Fatokunbo, 'NAICOM's State Insurance Producer (SIP) Policy: A Hasty Brew?', LeLaw Thought Leadership Insights, February 2019, p.3: http://lelawlegal.com/blog-details.php?title=naicoms-state-insurance-producer-policy-a-aasty-brew (accessed 08.05.2019).

23. See Stitch v. AG Fed. & Ors (1986) LPELR-3119(SC), pp. 37-38, paras. E-B, per Aniagolu, JSC that: "But that, clearly, is not so in law. The discretionary power of the Minister under Section 3 of the Finance Act, 1981 is clearly within the reviewable jurisdiction of the Courts ... once a prima facie case of misuse of power had been established, it would be open to the Courts to infer that the Minister acted unlawfully ... The principle basic in all common law countries, including Nigeria, is that under the universally accepted Rule of Law, the Minister must act fairly and not to the prejudice of the citizen."

24. See Section 24(5) IA. See also Sections 4(1) and (2) IA provides that: "(1) Subject to the provisions of this Act, no insurer shall commence insurance business in Nigeria unless the insurer is registered by the Commission under the Act; (2) The Commission shall not grant approval if it is satisfied that it is not in the public interest or the interest of policy holders or persons who may become policy-holders for it to be granted."

25.NAICOM has not been shy to take regulatory actions against erring industry players. See for example, Modestus Anaesoronye, 'NAICOM Slams Mega Fines on Insurers', BusinessDay, 06.03.2019: https://businessday.ng/ exclusives/article/naicom-slams-mega-fines-on-insurers/ (accessed 29.04.2019).

26. Para. 2.14 NAICOM Prudential Guidelines (Supra).

27. See Mobil Oil (Nig.) Plc. v. Mohammed & Anor (2018) LPELR-43667 (CA), where the Court emphasized the importance of initiating a case under the due process of the law. If done otherwise, it will amount to a nullity.

28. Regulation 12 Securities and Exchange Commission Rules and Regulation 2013 provides for the minimum paid-up capital requirements (Part B, Schedule 1) for its operators as may be prescribed by the Securities and Exchange Commission (SEC) from time to time; Similarly, the Central Bank of Nigeria (CBN), in exercising its powers under section 9 Banks and Other Financial Institutions Act Cap. B3, LFN 2014 recently increased the minimum capital requirements of microfinance banks. See CBN Circular, 'Review of Minimum Capital Requirement for Microfinance Banks in Nigeria', (Supra).

29. See Gabriel Fatokunbo, 'Improving Nigeria's Insurance Penetration: Legal, Regulatory and Market Considerations', LeLaw Thought Leadership Insights, March 2018, p.2: http://www.lelawlegal.com/blog-details. php?title=Improving-Nigerias-Insurance-Penetration-Legal-Regulatory-and-Market-Considerations (accessed 28.04.2019).

30. See for example, Obinna Chima, 'Maintaining Market Dominance, Tier 1 Banks Widen Gap with Tier 2 Lenders'

This Day, 07.05.2018: https://www.thisdaylive.com/index.php/2018/05/07/maintaining-market-dominance-tier-1-banks-widen-gap-with-tier-2-lenders/; 'Nigerian Tier 2 Banks - Playing a Catch-up Game', Proshare, 23.11.2017: https ://www.proshareng.com/news/Capital-Market/Nigerian-Tier-2-Banks---Playing-a-Catch-/37408 (both accessed 18. 05.2019).

31. See CBN, 'Guidance Notes on Regulatory Capital', (undated): https://www.cbn.gov.ng/out/2015/bsd/1.revised% 20guidance%20notes%20on%20regulatory%20capital.pdf (accessed 18.05.2019).

32. For many reasons, new entrants may prefer to start on a clean slate rather than acquire existing players. The existing players they find attractive may not be available for acquisition, or parties are unable to agree mutually acceptable valuation, whilst those available may not be attractive because of their legacy issues that may require considerable time and resources to resolve. New entrants may therefore prefer to expend such energy and resources in new venture.

33. Some industry watchers had found it rather odd that given NAICOM's critical vanguard role towards deepening and widening the reach of the industry, it for many years refused to license new operators, including those backed by reputable global players. NAICOM had justified such stance on the need to strengthen the industry vide consolidation through M&A deals. See for example, Nike Popoola, 'NAICOM Suspends Licence Issuance, Preaches Consolidation', The Punch, 22.09.2017: https://punchng.com/naicom-suspends-licence-issuance-preaches-consolidation/; and Eddet Ukoh, 'No License for New Composite Insurance - NAICOM Boss', The Revealer,   16.03.2018:https://therevealerng.com/index.php/2018/03/16/no-license-for-new-composite-insurance-naicom-boss/ (both accessed 18.05.2019). However, NAICOM's approach may be contrasted with the CBN's which just licensed five new banks. See Lolade Akinmurele, 'CBN Issues 5 New Banking Licenses', BusinessDay, 29.04.2019: https://businessday.ng/exclusives/article/cbn-issues-5-new-banking-licences/ (accessed 09.05.2019). Amongst the licensed banks are Titan and Globus which are expected to commence operations by August 2019.

34. Prior to TBMSC, it would appear NAICOM had been considering its non-issuance of new licenses stance. See Zaka Abd-Khaliq, 'NAICOM To Issue Fresh Insurance Licences In 2019', Leadership, 30.07.2018: https://leadership.ng/2018/07/30/naicom-to-issue-fresh-insurance-licences-in-2019/; and Nike Popoola, 'NAICOM Lifts Ban on New Licence Issuance', The Punch, 05.09.2019: https://punchng.com/naicom-lifts-ban-on-new-licence-issuance/ (both accessed 18.05.2019).

35. Ebere Nwoji, 'NAICOM Raises Insurance Firms' Operating Capital by 200%', ThisDay, 21.05.2019, p. 7; also available at:https://www.thisdaylive.com/index.php/2019/05/21/naicom-raises-insurance-firms-operating-capital-by-200/ (visited 21.95.2019). According to the news report: "Under the new capital regime, life insurance underwriting firms, which currently have a minimum paid up share capital of N2 billion, will compulsorily shore up their capital to N8 billion, representing a 200 percent increase. Insurance firms underwriting general business will by the new paid-up share capital regime, shore up their capital from N3 billion to N10 billion. Composite insurance firms, that is, firms underwriting both life and general business will have to raise their capital from the current N5 billion level to N18 billion. Reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion."

36. The ThisDay report ibid states further: "The new guidelines are coming after NAICOM's failure in its initial bid to shore up the minimum operating capital of insurance firms through its Tier Base Minimum Solvency Capital,

Details of the news guidelines are contained in a circular to all insurance and reinsurance companies .. The Commission said the new capital regime would take effect from June 30, 2020 for existing insurance and reinsurance firms, but with immediate effect for new firms entering into the business. 'The provision in respect of requirement of statutory deposit as stipulated in Part III, section 10 of the Insurance Act 2003 shall apply on the effective date of commencement of this circular,' the Commission said. Explaining reasons for the increase, the Commission said in July 2015 'the insurance industry witnessed its last recapitalisation and despite the astronomical increase in value of insured assets, consequent exposure to higher level of insured liabilities and operating cost of insurers, same capital continued to rule in the insurance industry."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.