The regulatory environments in different part of the world are undergoing changes. Some of the changes are government induced while others are induced by natural phenomenon, the terms known as force majeure in legal parlance.Most recent changes and never contemplated are Saudi Arabia -Russian oil politics and Covid-19 of which both have influenced the world economic order. These changes are germane to financial market activities of which regulatory agencies all over the world are being proactive. Nigeria should not be an exception.The financial market regulatory agencies in Nigeria must as a matter of urgency take a second look and or review subsisting policies before it is too late.
Intentions of most regulationare either to benefit the society, business environments and or their stakeholders. For instance, the Saudi-Russian oil politics is to protect the production output of Saudi Arabia and Russia respectively due to falling price of crude oil. Similarly, the Prudential Authority of United Kingdom recently urged restraints on payment of dividends or cash bonuses to senior staff, including all material risk takers as Covid -19 pandemic wreaks havoc on financial markets and undermines loan forecast. Central Bank of Nigeria (CBN) too announced some policy measures to douse the adverse economic impacts of the Covid-19 pandemic on the economy.
Oil politics and Covid-19 are virus in the business and regulatory environments. A virus is a scientific term for organism that will enter a healthy cell in a living organism and duplicate itself to create more benefits or damages to the host organism. If the definition of virus is adapted to subsisting regulations in Nigeria business environment, it becomes easier to understand why regulatory agencies should do an holistic review of subsisting regulations to achieve the intended objectives contemplated for the growth of the economy. The basis of this write up is on recent world economic challenges and how it affects implementation of recapitalization timeline of insurance companies in Nigeria.The author is of the view that timeline set by National Insurance Commission of Nigeria (NAICOM), though originally feasible, is now a regulatory still birthand unrealistic. NAICOM should therefore abandon the recapitalization timeline and postpone it to a date, to be determined based on post Covid -19 effects on world economies. The Province of Ontario Canada has said that the Covid-19 pandemic could last 18 months to 2 years.
The reasons for the postponement of the recapitalization timeline are not far-fetched. First, Nigeria economy is currently at a new challenging time since 2008 financial meltdown. Being a highly dependent oil economy, the Saudi-Russia oil politics and resultant oil glut is affecting the prices of crude oil and earning. Nigeria crude oil is selling below $24 per barrel as against $57 budgeted in 2020.Standard and Poor lowered Nigeria rating from B to B-. Similarly, Moody and Fitch gave lower rating for the country. The investment rating of Nigeria is declining significantly due to obvious perception of the country in not meeting debt service obligations due basically to lower revenue expectations. The Nigeria default risk rating is now very high. Institutional investors are exiting the local stock markets and appetites for debt and equity are gradually becoming weak. Investments in equity and debt investment are considered highly risky and speculative. Hence most of the intents to invest in insurance sub sector shares have weakened.
Second, the Oil glut has affected the budgetary expectations of the country and quoted Companies on the Stock Exchange.In 2019, Nigeria Stock market exchange all share index posted a negative return of -14.6% to close the year. In a report by Pro Share a leading stock market analyst it was reported I quote “Nigerian Stock Market closed March 2020 in red as market witnessed intense sell pressure during the month under review. The NSEASI dipped by -18.75% as against -9.11% loss recorded in the month of February 2020 while the NASD USI closed southwards with -1.10%loss recorded at the end of the month under review as against +0.26% loss in February 2020.Furthermore, the NSEASI ended Q1 2020 in the negative territory with -20.65% loss recorded as against -1.24% loss in Q1 2019 while the NASD USI closed the quarter southwards with -0.69% loss recorded as against +2.31% gain in Q1 2019.It is pertinent to state that the -20.65% loss recorded in Q1 2020 exceeds the -14.60% loss reported in 2019 and -17.81% loss in year 2018 respectively. The huge drop cannot be disconnected from the high level of uncertainty created by the outbreak of the Covid-19 which is now a global pandemic”.
Substantial discount are being offered on future oil contracts.Hence the assumptions upon which profit forecast in Insurance sub sector are made are no longer achievable.The stack reality is that there is no more attraction in investing in the debt and equity market.Institutional and portfolio investors are likely to be withdrawing their underwriting position from most insurance companies.
Third, the global economy is in recession and African countries are seeking debt relief and forbearance of interest payment. In a meeting of Economic Commission for Africa (ECA), it was proposed that a longer period for debt relief was imperative given that the global economy had entered a period of a synchronised slowdown, with recovery only expected after about 24 to 36 months. African Finance ministers appealed to development partners to consider debt relief and forbearance of interest payments
What is good for NAICOM at this period is to have a rethink on recapitalisation propositions of insurance companies, listen to informed opinion of African Finance Ministers, World Bank and ECA to postpone the recapitalisation to at least 36 months.
-Akin Oladeji-Johnbrowne is a Fellow of Institute of Chartered Accountants, Institute of Taxation Nigeria and Securities and Investment Institute, United Kingdom is currently based in Canada
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