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ABSTRACT
This research work is proposed to explore on the effect of recapitalization of insurance companies in Nigeria (A survey of selected insurances firm in Rivers State). The specific objective of the study are: to know the meaning of recapitalization, the importance of recapitalization of insurance companies in Nigeria. To identify problems and challenges of recapitalization of insurance companies in Nigeria; to proffer solutions to the problems and challenges of recapitalization of insurance companies in Nigeria. The researcher therefore adopted the descriptive survey method of well as the use of questionnaires to enable the collection of necessary data. The simple frequency table was used in presenting the data whereas the chi-square statistical technique was used in testing the formulated hypothesis in the relevant findings of the research. In accordance with the above. the following findings was revealed by the researcher, the following recommendations were made: the insurance industry should invest in good assets base that would enhance it performance in the local and global financial services market. There should be effective branch networking and insurance administrative policies. There should be a monitoring compliance with regularity authorities and control measures in place from the government and regularity in place from the government and regularity authorities. To achieve reasonable return on investment, there should be improvement in customer’s service, increase market share and sustenance of growth. Proceeds on investment should be used by the industry to provide adequate working capital and funds, the opening of additional branches and retails outlet. Proceeds from investment should also be used for enterprise transformation and businesses diversification required to enable the company attain it desired goal of leading insurance industry. For emerging and acquisition, there should be effective due diligence to ensure post merger compatibility and help merging parties identify potential merging synergies.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Recapitalization can be define as a change in a company’s capital structure, such as an exchange of bonds for stock. Recapitalization is often undertake with the aim of making the company’s capital structure more stable, and sometimes to boost the company’s stock price (for example, by issuing bonds and buying stock). Okonjo (2006):Companies that do not want to become hostile takeover gargets might undergo a recapitalization by taking on a very large amount of debt, and issuing substantial dividends to their shareholders (this makes the stock riskier, but the high dividends may still make them attractive to shareholders). Also bankrupt companies often undertake a recapitalization as a part of their reorganization process. Tunde (2005):
The challenges of recapitalization in the Nigeria insurance industry is ‘ been described as one ridden with controversies in the industry starting from the criticism that trailed the late recapitalization exercise in the industry. (2008).
This is recalled when the governor of central bank of Nigeria announced the 13/reform points freeform agenda in July 2004 which generated so much controversies and was greeted with apprehension. Adams, (2005):
In view of the anticipated post consolidation challenges, the need for greater understanding and interaction amongst all stakeholder cannot be over emphasized, it is the joint responsibility of all the Nigeria financial system, not least the insurance and banking sub sectors to achieve and maintain a safe and sound financial system which would put the Nigeria economy on the path of sustainable growth, and to improve the image of the industry for better appreciation by the general public through massive public enlightment campaign and aggressive public education on the values and benefit to insurance.
The stakeholder in the insurance industry have embraced the reform as one of the best option to push the insurance industry and national economy forward and the public interest. Ajiboye, (1998): Though there was also controversies that trailed the industry that some officers in the commission is taking bribe to certify ailing companies and that the commission was only interested in collecting recapitalization levy not minding whether the recapitalization process is actually observed to the latter.
Senior Nigerian Government official defined insurance as one business that exist in order to insurance the success and survival of other business. Life as we known is full of risks and uncertainties which form part of the life we face him and cause some financial loss.
Insurance does not stop the disaster from happening although provides preventive method neither can it eliminate the loss but what it does is to alleviate the burden beared as a result from the loss incurred. Arena, (2006):
The purpose of insurance is to compensate the victim for the loss suffered as a result of these risk of life. Some of the risk in life are insurable while some are not but the insurance industry in each country has worked and continue working different devices in respect to type of insurance policies to cater for each of the insurance risks.
It has been observed generally that people trend to believe that insurance is an exclusive preserve of the rich. Even the rich themselves trend to believe that ensuring lives and property against, the vagaries of life in an unimportant issue, place at the tail end of priority list and so relegated to the background, this is my own view to a social phenomenon. Okonjo (2006):
Re-capitalization of insurance sector n Nigeria is intended among others to help mobilize domestic savings. These have attracted criticism from both the public and private sector. Some believe that this would lead to the collapse of most insurance companies and the attendant unemployment would be grave for the economy; others believe that the capital base be structured in a way that would categorize insurance sector as big and small players. There is also a view that the proposed policy is a welcome development but if not well managed could send the wrong signals, as it could lead to a run on insurance firms within the stipulated period.
1.2 STATEMENT OF THE PROBLEM
Recapitalization is important in the insurance industry. Macro-economic stability is generally the ability of the emerging mega insurance companies to fast-tract the growth and development of the national economic world depend so much on the performance of the v macro economy, particularly the conduct of fiscal and monetary policies, Good governance represent a panacea for socio economic and political stability. Okonjo (2006):
The existing legal frame work for the insurance industry and supervision is inadequate for the challenges of consolidation as it lacks the needed power to enable the regulatory authorities effectively discharge their mandate. Tunde (2005):
Returns on investment will also pose a major challenge for the industry except for companies that are proactive. There is increased demand for higher returns from shareholders.
Another problems is the consolidation integration, it entails harmonizing infrastructure, processes, system and people of the merging entities into an organization. Tunde (2005):
1.3 PURPOSE OF THE STUDY:
This research work is an attempt to a look at the effect of recapitalization of insurance companies in Nigeria. And also the “weakness that the 13 point insurance reform agenda which among others were to raise their minimum capital base on or before 28 February 2007 for new and intending companies with the hope of improving on it.
The legislation also of mandate if recertify, and any company that was able to provide evidence of recapitalization, having a deposit of 50% of its paid up capital with the central bank of Nigeria (C.B.N) and that only those operators that provide, these were recertify by it. The reform is expected to lay solid foundation for the development and strengthening of the insurance sub sector in order to properly position it to respond appropriately to the dynamies of the Nigeria economy.
1.4 SIGNIFICANCE OF THE STUDY:
This research work is primary to show the effect of recapitalization of insurance companies in Nigeria, its challenges and the ability for the industry to back up their share capital.
Recapitalization will also at the same time fight against fraud stars -r and take insurance companies where by the companies will be at large to under write big business like oil and gas and also reduce re-insurance abroad. The sub sector would become more efficient and more competitive not only locally but also in the global arena.
The process will lead to meager and acquisition of companies v amalgamation.
1.5 RESEARCH QUESTION
Based on the implication and interaction of data collected, the study is required to answer the following questions.
- Benefit of recapitalization to the insurance industry.
- Does recapitalization has a greater impact on the Nigeria insurance industry as well as the economy.
- How effective is the legal Frame work to the insurance industry.
1.6 RESEARCH HYPOTHESES
The following are the research hypotheses.
For reliability and validity of this research work, the following hypothesis was use to test the validity of the data collected for this research work.
Ho: recapitalization has no positive effect on the insurance industry as well as the economy.
H1: Recapitalization has positive effect on the insurance industry as well as the economy.
1.7 SCOPE OF THE STUDY
This piece of work is to focus on the challenges of recapitalization of the Nigeria insurance industry. However this study is limited to the insurance companies in the Niger Delta region, primary and secondary source of data gather from journals, magazines, and seminar.
1.8 LIMITATION OF THE STUDY
The research work is filled with so much set back or draw back which includes the process of obtaining information from the insurance personnel were not regular in the office because of sales of its share or product just top meet up target, adequate information were not given.
The need for financial constraint was also a major factor because of transport and other climatic condition. This is also time consuming.
1.9 DEFINITION OF TERMS
CAPITAL: Means the wealth owned by a person or organization or inverted, lent, or borrowed the excess of a company’s asset over it liabilities.
CONSOLIDATION: Is the reduction in the deposit lacking institutions with simultaneous increase in the size and concentration of the consolidation entitles in the sector. (Gberegbe, F. (2008).
EFFECT: It means a change which is a result or consequence of an action or often cause.
INSURANCE: Is define as an agreement by which an insured transfers his risk (uncertain tendency to loss). To the insure at an adequate fee called premium on the promise that the insured shall be indemnified or compensated upon the occurrence of the insured event (J.L. Fiiwe (2003).
MERGER: Is a situation where, for many strategic and economic reasons, two or more companies or in deed, organization come together to form a larger company (Engere D. (2005).
RECAPITALIZATION: Is the act of supplying long term funds to meet the requirement of monetary authority. (Gberegbe, F. (2008).
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