Recapitalization in the Nigerian Insurance Industry: The Mergers and Acquisitions Option

Abstract

In an ambitious move for the recapitalization of the insurance industry in Nigeria, the National Insurance Commission ("NAICOM") had in 2019 reviewed and increased the minimum paid-up share capital requirement for all classes of insurers doing business in Nigeria (except Takaful operators and micro-insurance companies). Naturally, therefore, players in the sector have been exploring a range of options to help them meet these major recapitalization requirements. These insurance companies have, however, been facing many difficulties in raising the necessary capital due to an unattractive insurance sector, a fact which has been exacerbated by the disruptive effects of the coronavirus pandemic on the economy. Also, apart from discounting real assets from being computed towards the recapitalization, NAICOM has restricted insurance companies from using debt finance to meet their recapitalization requirements, insisting that prospective investors must join the company and participate in its management rather than hand over money and fall into the background. All of this has made mergers and acquisitions (“M&A”) a very attractive option for affected insurance companies. On that note, this paper explores the regulatory framework for M&A as a veritable avenue for insurance companies to meet their recapitalization obligations. The paper also posits that M&A represents the most advantageous recapitalization option in the light of the present economic realities, as it stands to help increase value generation, maximize cost efficiencies, and increase market share without frittering away scarce assets or unduly burdening affected companies.