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Cablegate: Finance Minister Announces Insurance Industry

This record is a partial extract of the original cable. The full text of the original cable is not available.

161300Z Sep 05

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
---------------------------------------

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.

-------------------------------
Experts Predict 10-20 Companies
-------------------------------

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

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