US embassy cable - 05LAGOS1443

UNCLAS SECTION 01 OF 02 LAGOS 001443 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, EINV, NI 
SUBJECT: FINANCE MINISTER ANNOUNCES INSURANCE INDUSTRY 
REFORM 
 
REF: LAGOS 01405 
 
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Summary 
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1. (SBU) Summary.  Finance Minister Okonjo-Iweala recently 
unveiled Government of Nigeria's (GON) insurance industry 
reforms aimed at raising the capital base requirements for 
insurance companies by February 28, 2007.  The goal is to 
consolidate and strengthen the insurance industry along the 
lines of the bank recapitalization process (reftel). 
Insurance experts generally agree the long-term benefits are 
positive, but predict fewer insurance companies will likely 
survive.  Unlike the banking sector, the insurance industry 
is much more limited in its ability to raise capital. 
Analysts predict only 10 to 20 out of over 100 insurance 
companies will make the 2007 deadline.  End Summary. 
 
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Recapitalization of Insurance Companies 
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2. (U) Finance Minister Ngozi Okonjo-Iweala announced 
September 5th the GON's program to raise minimum capital base 
requirements for insurance companies.  The GON will now 
require life insurance companies to increase minimum capital 
base from naira 100 million (USD 758,000) to naira two 
billion (USD 15 million).  Non-life insurance companies must 
go from naira 200 million (USD 1.5 million) to naira 3 
billion (USD 22 million), and reinsurance companies must grow 
from naira 350 million (USD 2.6 million) to naira 10 billion 
(USD 75 million).  Industry experts believe most of the over 
100 insurance companies will not meet the requirement. 
 
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Experts Predict 10-20 Companies 
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3. (SBU) Most financial experts see a need to sanitize the 
insurance industry.  Layi Adetomiwa, Head of Finance at UAC 
PLC, one of the largest diversified business companies in 
Nigeria, stated the large insurance companies were likely to 
merge or acquire smaller companies in order to raise the 
needed capital.  Kofo Majekodunmi, Deputy Managing Director 
of MBC International Bank, told us "insurance companies would 
have a much harder time raising capital through Initial 
Public Offerings (IPOs)" than banks.  Deputy Managing 
Director of GTBank, Bolaji Lawal concurred.  They both felt 
insurance companies would have a more difficult time because 
there was no "strong insurance culture" in Nigeria. 
 
4. (SBU) Titi Shodeinde, Head of Retail Insurance at Heirs 
Insurance, indicated the capital requirements will be 
difficult to meet because they are also cumulative.  For 
example, her company sells both life and non-life insurance, 
meaning they will need to raise naira 5 billion (2 billion 
for life plus 3 billion for non-life) in capital.  Bismarck 
Rewane, CEO of Financial Derivatives and one of Nigeria's 
most insightful financial minds, also agrees fewer insurance 
companies will survive the recapitalization requirements. 
Analysts predict 10 to 20 companies will make the 2007 
deadline. 
 
5. (SBU) Currently, no company meets the new requirement. 
Possible survivors include the 11 largest insurance companies 
in Nigeria.  These companies are: Linkage Assurance, NICON 
Insurance, AIICO Insurance, Industrial and General Insurance, 
Unitrust Insurance, Niger Insurance, The Lion of Africa 
Insurance, Royal Exchange Assurance, Leadway Assurance, 
Cornerstone Insurance, and Alliance and General Insurance 
Company.  AIICO Insurance Manager for Group Life and Pension, 
Tunde Adebari, however, stated his company and other large 
insurance companies have been raising their capital base 
several months in anticipation of the September 5 
announcement. 
 
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Comment 
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6. (SBU) Comment.  With more than 18 months remaining, large 
insurance companies are likely to raise capital through 
combinations of mergers, private placements and Initial 
Public Offerings.  Unlike the banking sector, the insurance 
sector is likely to face greater difficulty in raising 
capital because of weak returns, lack of a strong insurance 
culture, and low penetration in the market.  It is a fact of 
life that most Nigerians do not purchase life insurance, 
health insurance, or vehicle insurance.  Thus, at the end of 
the day, there will be substantially fewer companies than 
what now exists.  These companies should be stronger with the 
ability to provide more and better service, at least 
theoretically.  Having fewer, stronger companies can bring 
order to the sector as well as generate greater public 
confidence and understanding.  If the reforms move the 
industry toward these objectives, the reforms would prove to 
have been worthwhile.  End Comment. 
BROWNE