The National Insurance Commission has barred insurance companies from investing in any business outside the country.
Insurance firms are also prohibited from investing their income in their parent’s companies, according to a new policy by the regulator.
Section 3.4.2 under sub-section H of the new policy states, “Insurance funds shall not be invested offshore.”
Section 3.4.1 under sub-section D of the guidelines also indicates that “no insurer shall invest its funds in its parent company.”
According to the new policy, no insurer shall invest in derivatives without obtaining an approval from the commission. And not more than 20 per cent of the total current account balances and bank placements shall be placed in any one bank.
It also states that no insurer should invest in any company that had neither reported profits nor paid dividend in the last three years.
NAICOM has ordered that no insurer should outsource its investment functions without an approval from the commission.
It, however, said insurance firms could invest in banks’ acceptance and commercial papers guaranteed by an issuing bank.
Similarly, the commission said insurers were free to invest in debt instruments issued by the Federal Government or the Central Bank of Nigeria, as long as such securities could meet certain conditions.
The conditions, according to NAICOM, included securing the approval of the Securities and Exchange Commission; and the instruments must be readily marketable and issued in accordance with existing regulations.
Insurance will also be allowed to invest their funds in debt instruments issued by state governments provided such securities have the full guarantee of the Federal Ministry of Finance, according to the guideline.
It noted that insurance funds might be invested in debt instruments issued by corporate entities with clearly defined terms, periodic and terminal payout as well as interim, terminal and contingency redemption features.
“Investment shall be in a company that has minimum corporate rating of BB+ range by at least one recognised risk rating agency registered by SEC,” it stated.
NAICOM warned that insurers must not invest their funds in shares or any other securities issued by a shareholder of an insurer, subsidiaries of associates, joint ventures and affiliates of the company or its shareholders.
The commission said that an insurer should not sell, transfer or exchange insurance funds with any shareholder, director or affiliate of the insurer, an employee of the insurer or other related party.
NAICOM warned that insurance funds should not be pledged as collateral for any borrowing by an insurer.
It added that investment of shareholders’ funds in unquoted equity, including investments in associates, subsidiaries, joint ventures and other related companies should be limited to 20 per cent of such funds.
The commission noted that an insurer must not invest more than 25 per cent of the proceeds of public offers and private placements of shares in non-insurance related companies or ventures.
“All investments relating to insurance and annuity funds shall be distinguished from those representing other funds in the financial statements,” NAICOM said