How court pronouncement will rattle industry

How court pronouncement will rattle industry

By Sunday Ojeme

The gradual ascension of the insurance industry in Nigeria to global relevance witnessed a turn on Thursday when a Federal High Court sitting in Abuja put a stop to the ongoing recapitalisation programme.
NICON Insurance Plc and Alliance & General Insurance Plc had gone to the court to challenge the exercise based on perceived illegality.
The pronouncement of the court, according to observers, has drawn back the hands of the clock in an industry was compelled to put its house in order and become relevant and competitive among its peers across the world.
Going by the intrigues and personal interests that characterised the review of the recapitalisation programme, industry watchers had long predicted the current development.
Prior to the court pronouncement, the operators had been thrown into confusion over the inability of the National Insurance Commission to release the list of the verified companies.
While the Commissioner for Insurance, Mr. Fola Daniel, had promised at one of his official outings, that the list would be out in a matter of days, findings by our correspondent last week revealed that the Ministry of Finance was yet to finalise work on the report submitted by a technical committee set up to review the recapitalisation programme.
The release of the list and that of the N170bn held in an escrow account with the Central Bank of Nigeria had been the problem plaguing the sector before last week’s bombshell which had been anticipated by keen observers who had predicted that more legal battles awaited the regulators.
True to their prediction, Justice Anwuri Chikere of the Federal High Court on Thursday issued an interim order restraining the Federal Government from further recapitalising and consolidating the insurance sector as well as barring the Attorney-General of the Federation and the Minister of Finance from implementing the report and recommendations of the Presidential Committee on Insurance Capitalisation set up by a former Minister of Finance, Mrs. Nenadi Usman.
NICON, through its counsel, told the court that part of the committee’s report recommended that the Federal Government should review the privatisation of NICON Insurance.
Counsel to the applicants, Mr. Jude Agboje, urged the court to restrain the defendants from implementing the report because his clients would be adversely affected by it.
He said his clients had a pending suit, challenging the steps taken by the government in the recapitalisation and consolidation of the sector.
He said that Section 9 (4) of the Insurance Act exclusively empowered the National Insurance Commission to carry out such review, adding that the steps taken so far by the Attorney-General of the Federation and the Finance Minister were unconstitutional, null and void.
According to him, “If the defendants are not restrained in the interim, the applicants will suffer great loss in their investment running into billions of naira.”
Chikere granted the order stopping the defendants, in the interim, from re-certifying the licences given to the applicants, pending the determination of the substantive suit.
She also ordered that the report of the Malam Bala Zakariya’u-led committee should not be implemented until the substantive suit had been determined.
The order also barred NAICOM from any further breach of the Insurance Act 2003 and to respect Section 315 of the 1999 Constitution.
Industry watchers believe the court order will go a long way in playing a role in the perception of insurance practice in the country.
They argued that although the recapitalisation exercise was prescribed by the government in good faith, it would have been equally more rewarding if implemented according to the relevant law.
Reacting to the court pronouncement, the Chairman, Arbitrage, Prof. O. Akintola-Bello, told our correspondent on Saturday that although the government had the right to regulate the insurance industry through the NAICOM, it was, however, not proper for it to increase the capital base without first amending the relevant section of the law.
He said the court was right to say that the exercise should be stopped, adding that the law should be amended and taken to the National Assembly.
According to him, “The government has the right to regulate the industry. The government has the right to prescribe the entry capital for the industry through the National Insurance Commission. But the relevant Act has to be amended before such a step should be taken. If that has not been done, then the court is right to say it should be stopped. The amendment should have been done through the National Assembly.”
The Group Managing Director, NICON Group, Mr. Jimoh Ibrahim, alleged that, the commission committed illegality and misadvised the minister. He said the appropriate thing to have been done was to amend the Insurance Act 2003, just as the Central Bank of Nigeria did before the recapitalisation in the banking industry.
However, the Managing Director of Libra Insurance Brokers Limited, Mr. Banji Oke, said since the matter was in court, the proper thing to do now was to abide by the decision of the court.
Much as the defendants are expected to obey the court order, the development is also expected to throw up a lot of issues in the industry. Specifically, the biggest bargains the recapitalisation programme provided for the operators were the anticipated gains from the 45 per cent local content and the awakened interest by foreign investors.
While the 18-month exercise lasted, a number of foreign investors, who see Nigeria as a cash cow because of her oil wealth, reluctantly took interest in investing in the sector. Through their financial intervention, a number of companies were able to meet the prescribed capital base that was fixed by the government to grow the industry.
Private equity fund manager, EMP Africa, invested $46.5m (about N6bn) in Continental Reinsurance Plc as well as additional $4m from three other foreign investors, RP capital Group, Genesis Emerging Market Fund and South African Investec Asset Management.
In the same breath, the International Finance Corporation, an arm of the World Bank, invested $14m in Leadway Assurance Company Limited. Cornerstone Insurance Plc also got some partnership from South Africa while the world’s biggest insurer, American International Group also took interest in the nation’s insurance sector.
While the deals were on, indications emerged that the foreigners were sceptical of the ability of Nigerian government officials and some operators to keep their heads above muddy waters. It was based on this perception that some of the investors who had initially taken interest in the process changed their minds.
The operators saw the coming of the foreigners as an opportunity for them to move offshore where grounds would have been prepared for them through the influence of their partners.
Although the Federal Government is expected to grandstand over the court’s pronouncement, the legal battle only points to the fact that insurance business in the country is not likely to be taken seriously by foreigners. Observers believe that such a perception will equally cast doubts on the ability of the operators to benefit fully from the local content largesse, which majority of them had seen as an opportunity to run the sector profitably.
Since the court had pronounced that everything should go back to status quo, it is expected that the multinationals that were not too willing to transfer their risks to local insurers in the first place, will see this as an opportunity to halt discussions along that line or put a stop to future renewals.
Coupled with the above is the internal wrangling that is likely to occur while the court proceedings continue. During the recapitalisation programme, companies came together through mergers and acquisitions. Some composite operators ceded their life business licences to others while they merged with others to operate general business.
Industry watchers believe that if the operators are to follow the court’s pronouncement to the letter, the process of reorganisation will further hamper operations if some managing directors who became executive directors during the mergers decide to get their positions back.
While a number of chief executives contacted by our correspondent reserved their comments on the issue, the Group Chairman of Alliance and General Insurance Plc, Chief Biyi Olafisoye, said that regulators all over the world always encouraged mergers where shareholders had voluntarily agreed to do business together, pointing out that it was sad that NAICOM was untidy in executing the exercise.



Insurance: Sustained awareness, key to future development
Sunday Ojeme
An electronic mail inquiry on insurance practice in Nigeria put across to audience in the Yahoo question column by our correspondent on Friday provided a response, which confirms the embarrassingly low awareness level of Nigeria’s insurance industry to some people within and outside the country.
In one of the replies, a respondent noted that, “Nigeria has a history of fraud and corruption. This has been made worse in recent years by the increase in scams. This makes offering insurance very risky. To my knowledge, insurance in the traditional sense is only available to multi-national corporations through companies like Lloyds of London. If anyone has heard of an operating insurance industry in Nigeria I would love to hear about it.”
The history of insurance practice in Nigeria is replete with conservatism and a recluse attitude on the part of the practitioners. After 47 years of independence, insurance practice in the country had remained a stunted sector until recently when the reforms in the financial sector began to give a new direction to the industry.
Even at that, observers still believe that the operators, rather than look for avenues to project the new and forward looking sector to the outside world, have been engaging themselves in marketing strategies that are fraught with intrigues and lacking dynamics that will convince foreign investors of any seriousness.
After the first anointing Nigeria received on February 28, 1921, which signaled the establishment of the first insurance firm in the country, Royal Exchange Assurance Plc, the industry actually began to experience growth a few years after the civil war.
It all began by witnessing a very slow growth as there were less than three hundred motorcars registered in Lagos, without the marine, which was another common mode of transportation contributing much to the premium growth.
The sector witnessed a bit of expansion after the civil war when legislation was introduced for Workmen Compensation and Motor Vehicle Insurance. These classes of business introduced many customers to the need for and benefits of insurance.
In addition, the early days of industrialisation and manufacture had created greater insurance requirements. It was at this time, that these relatively large volumes of business attracted other insurance companies to Nigeria and encouraged the formation of local insurance offices.
In the 1970s with increasing business growth, owing to the great strides being taken by the economy of the country in manufacture, improved road facilities, and the recovery from the misfortunes of the late 1960s, there was the need for greater awareness and transaction.
However, the excitement in the industry came to an end the moment indigenous investors began to take charge of the sector. Although it is a business driven by agents, the operators failed in their duty to educate Nigerians on the importance of transferring their risks.
The country has paid dearly for this unavoidable oversight judging from the gains countries like South Africa and India have made from insurance. According to experts, Nigeria covers less than one per cent of her insurable population, making her one of the countries with the lowest insurance penetration in the world.
According to an overview by Nigerianinvestments.com, the industry’s asset base as at December 2004 was N154.12bn as against N54.30bn in 2000.
The site also revealed that, “By way of comparison, the total asset size of the insurance industry was about 4.01 per cent of the total assets of Nigerian banks as at December 2004. The gross premium income of the industry in 2004 was N69.41bn with a growth rate of 118.32 per cent over the gross premium level of N27.67bn in 2000. It shot up to about N80bn in 2005.
“Although the growth has been adjudged impressive, only 19.47 per cent of the total premium was realised from life insurance business. This was caused by the low level of insurance awareness in Nigeria as a result of unattractive products to mobilise long-term funds in the system.”
The industry gross premium in relation to the Gross Domestic Product as at 2004 was 0.98 per cent against 14.38 per cent in South Africa. Life insurance premium per capital in United States dollars stood at $0.7 as against $545 in South Africa, while the non-life insurance premium capita in US$ stood at $3.3 as against $141 in South Africa.
As for regulation in the industry, the first major step at regulating the activities of industry was the report of J.C. Obande Commission of 1961, which resulted in the establishment of Department of Insurance in the Federal Ministry of Trade and which was later transferred to the Ministry of Finance. The report also led to the enactment of Insurance Companies Act 1961, which came into effect on 4th May 1967.
In 1968, insurance companies regulations was put in place to facilitate the implementation of Act No 58 of 1961 which then classified the business into different classes for registration purpose and relevant forms for record keeping.
Insurance Decree No 59 of 1976 was enacted putting together the provisions of the various laws.
Decree No 58 of 1991 was enacted improving provisions of Decree No 58 of 1979 and No 40 of 1988. The major highlights of 1991 Decree include; Increased paid-up share capital of insurers and re-insurers in respect of non-life business and life business respectively, compulsory membership of trade associations; management of security fund by NIA; Practice of no-premium, no-cover.
In 1992, the Insurance Special Supervision Fund decree No 62 was enacted, establishing a body known as National Insurance Supervisory Board, bringing out Insurance supervision outside core civil service, changing designation of Chief Executive from Director of Insurance to Commissioner for Insurance and setting up the Board of Directors to oversee the affairs of the established Body. All this provisions were made to attract high-level manpower.
Other provisions were made in reviewing decree No 62 of 1992, decree No 1 of 1997; change of name from National Insurance Supervisory Board to National Insurance Commission, establishment of governing board, staffing, source and application of funds, control and management of failed and failing insurance companies, supervisory functions and powers.
However, some deficiencies noticed in the law prompted NAICOM to initiate a committee, including key players in the industry to review it, which now gave birth to the new Insurance ACT of 2003.
The major experience in the sector in the last few years has to do with recapitalisation to enable the industry compete with its counterparts all over the world. While experts believe that insurance firms are supposed to own banks the reverse is this case in this clime.
Report said during the just concluded recapitalisation programme, at least N30bn fresh funds realised from the exercise will be traceable to banks with interests in insurance companies.
The report said some eight banks played vital roles in ensuring that their insurance subsidiaries met the sector’s new minimum capital requirement.
The lackluster performance compelled the administration of President Olusegun Obasanjo to call on the operators to increase their shareholders’ funds soon after the banks had successfully recapitalised.
On September 5, 2005, a former Minister of Finance, Dr. Ngozi Okonjo-Iweala, issued a directive raising the capital base from N350m to N10bn for reinsurers and from N150m to N2bn for life business operators and N200m to N3bn for general business. The operators had between September 8, 2005 and February 28, 2007 to achieve the new minimum capital requirement.
The then Commissioner for Insurance, Chief Emmanuel Chukwulozie, was passionate about the directive and went ahead to convince his colleagues in the industry on the need to lift the industry from its lowly and derisive state.
Prior to the pronouncement, the total market capitalisation for the insurance industry stood at N30bn spread among 103 insurers and four reinsurers. This was seen as grossly inadequate by any standard.
Given the recapitalisation to the tune of N25bn for the banks, two or three banks could comfortably purchase all the insurance companies.
A number of operators were, however, not comfortable with the directive just as they proffered that insurance operations did not require such huge sums to do business while some others differed.
The Managing Director of LASACO Assurance Plc, Dr. Olusola Ladipo-Ajayi, said the failure by insurance industry to increase its capital base through its own initiative necessitated government’s interventions.
The 2005 directive was the second time government would raisie capital base in the industry within two years. The first one was after the Insurance Act 2003.
The Managing Director of Niger Insurance Plc, Malam Bala Zakariyau, said, "The industry has been expecting a change in line with the reforms of government to increase the capital base of insurance companies and I believe individual companies will have to go to the drawing board and see how best they could continue in business."
Within the 18-month period, various mechanisms including mergers and acquisitions, private placements, share offers among others were put in place to source for funds.
After the exercise, which ended February, the industry moved from N30bn capitalisation to almost N200bn. It also successfully mobilized more than $100m in foreign direct investment into the economy.
Although, the programme was adjudged successful by a section of observers, the immediate past Minister of Finance, Mrs. Nenadi Usman, however, picked holes in it and directed that it be reviewed.
The review of the exercise by a panel set up by the ex-minister has come out to constitute another clog in the wheel of the industry as the operators have been kept in suspense for over six months with their money realised from the recapitalisation exercise still withheld in an escrow account with the Central Bank of Nigeria.
Although the current position of things in the industry projects some level of confusion, operators believe the near future is bright for the industry judging from the consistent volume of growth experienced through increases in gross premium and other profit indicators.
The Chairman of LASACO Assurance Plc, Chief Akin Leigh, said, “Insurance industry in Nigeria has come of age. It has moved from that stage where badly dressed marketers and agents used to be the parameter for measuring insurance practice in the country.”He said with the new capital base and the Federal Government’s 45 per cent local content largesse, the industry would experience a positive change in the nearest future that will erase the shortcomings of the last 47 years.




Law Union records 150% growth in first quarter
Sunday Ojeme
Law Union & Rock Insurance Plc has recorded a post-tax profit growth of 153.8 per cent during the first quarter of 2007. The profit grew from N53.9m recorded in the corresponding period of March 2006 to N136.8m for the period ended March 31, 2007.
A statement obtained by our correspondent on Monday said pre-tax profit also went up to N177m representing an increase of 122 per cent over the preceding year’s figure of N77m, while turnover grew by 72 per cent to N729.6m over the preceding year’s first quarter figure of N423.6m.
The statement said the improvement was attributable to increase in the company’s volume of underwriting business and the strong market confidence it enjoyed.
The company’s financial results for the year ended December 31, 2006 also revealed that the turnover rose to N1.33bn in December 2006 from N1.10bn in December 2005, while profit after tax grew to N179.3m from N165m recorded in 2005.
The statement quoted analysts as saying that the feet achieved in the first quarter of 2007 was commendable especially considering what is happening in the insurance sub-sector. The statement said with a capital base of close to N5bn, Law Union & Rock was now stronger and better positioned to play in the big league in the insurance market.
Law Union is currently enjoying strong market confidence in the capital market, leading to a rise in the value of the stock in the last eight months.
The company’s stock, which traded at N1.58 kobo as at January 4, 2006, closed at N3.68 as at September 13, 2007, representing a capital gain of N2.1kobo or 132.9 per cent.
Law Union is one of the insurance firms recently recertified by the National Insurance Commission to carry on non-life risk underwriting.
The recertification of the company followed a successful recapitalisation during which the insurer went to the market to raise more equity funds to beef up its capital base in line with the requirement of a minimum equity capital of N3bn for non-life insurance firms in the country.



Sovereign Trust confirms growth with first quarter results

The first quarter result of Sovereign Trust Insurance Plc has revealed a net premium increase of 24 per cent, according to a statement on Friday.
The financial performance for the period ended March 31, 2007 shows a gross premium income of N605.91m as against the N485.08m recorded in 2006.the figure represented 24.91 per cent improvement.
The statement added that within the same period, the company’s net premium income peaked at N525.32m, a 24.75 percent increase over the N421.14m recorded in 2006.
Total investment income and other incomes raked in by the firm in the first quarter of the year was a 448.34 per cent higher than what it posted in the first quarter of 2006, having improved from N21.74m to N119.21m.
In the same vein, STI also paid claims to the tune of N158.21m, up from N107.26m that was paid out to various policyholders within the same period in 2006 representing 47.50 per cent improvement in customers’ expectations met and surpassed.
The statement said the company also put its profit before taxation in the first quarter of the year at N177.97m, a 146.60 per cent improvement over the N72.17m recorded in 2006 while its profit after tax rose to N156.61m, up from N61.34m recorded in the first quarter of 2006 representing 155.31 per cent increase.
Within the period, the company increased its capital base from N1.12bn to N2.04bn, an 82.14 per cent increase while it also raised its contingency reserve by as much as 105.05 per cent within the first quarter of the year from N147.50m in the first quarter of 2006 to N302.88m as at the end of March. Its share premium account was boosted by as much as 1673.67 per cent, having been raised from N18.57 by the first quarter of last year to N329.37m.
Commenting on the feat, the Chairman of the company, Chief Ephraim Faloughi, said the growth in the company’s financials would place it ahead in taking a larger share of the market, especially in the oil and gas sector.
He said, “It is also obvious that the future of insurance business is bright in Nigeria especially with government’s expected implementation of the 45 percent local content policy in the oil and gas sector which will significantly boost insurance income. We have taken strategic steps to strengthen our push for a huge chunk of this emerging market and are currently one of the leading oil and gas underwriters in the nation.”
The statement said STI, within the first quarter, also brought down the balance in its life fund by 51.85 per cent, having reduced it from N73.09m by the end of March 2006 to N35.18m by March 31, 2007.
The company also raised its short-term investments by a whopping 121.82 percent while reducing its investments on long-term assets by 15.49 percent.
Shareholders’ interest in the company rose by as much as 118.67 per cent within the period review peaking at N3.28bn up from N1.5bn just as the firm’s assets were raised by as much as 106.63 percent from N1.81bn as at the end of March 2006 to N3.74bn as at March 31, 2007 while its statutory deposits was shored up to the tune of N375m by the end of the first quarter of this year.
The Managing Director, Mr. Seun Ajayi, encouraged the employees to embrace customer service excellence while bracing up for total quality management. He advised them to uphold productivity culture, team building, interpersonal relations, service excellence, improved corporate and individual performances, work ethics and corporate profitability, leadership strategies, and effective communication as a way of improving on customer service excellence.
The consolidated Sovereign Trust Insurance Plc is the product of a combination between the original Sovereign Trust Insurance Plc, Confidence Insurance Plc, Coral International Insurance Company Limited and Prime Trust Insurance Company Limited.



Insurance firms advised to adopt local software

Nigerian insurance operators have been advised on the need to adopt local software for their operations rather than stick to foreign ones.
Making this declaration in a statement, the Managing Director, General System Technology, designers of Perfect Policy software, Mr. Shola Kuku, said Nigerian insurers had become wiser and now knew that what mattered in a solution was not how much, but the functionality in the solution in question.
He said the vogue before now was foreign software, which is highly expensive but with not much to offer in terms of package, pointing out that for every upgrade, the user was expected to pay more, while for maintenance the companies paid higher prices.
According to him "The vogue before now was for insurance companies in the country to go for foreign software not minding the content richness of the solution as well as the cost. This became a big burden on the firms. With the cost of upgrade very high, as the packages are designed to demand upgrades to offer more functions and the high cost of maintenance by expatriates and the payment in foreign currency, the burden was crushing."
He said Nigerian software had proven to be functionally rich and covered all aspects of insurance business, adding that Perfect Policy had become the toast of insurance companies because it does not require the cost of upgrades.
“Everything needed for effective operations of an insurance firm is incorporated into Perfect Policy. It incorporates features that address all the operational requirements of an insurance company to render top of the range services to clients,” he said.
He said the software addressed branch operations, agency/broker administration, short-term/non-life businesses (all classes), life, pension and mortgage schemes, claims administration, risk management/reinsurance, insurance premium accounting, as well as management information/statistical reporting among other things.
He also revealed that 10 insurance companies and others in some African countries had adopted the software from the stable of his company.
He said General System Technology was an indigenous insurance software research and development company that dedicated its resources and manpower to purely insurance solutions, adding that the company's decision to focus on insurance research and development was to ensure a steady flow of new products computerisation and the continued improvement and upgrading of existing ones.






Insurer tasks colleagues on developmental product

Insurance institutions in the country have been challenged to look the way of the Small and Medium Scale Enterprises in the development of their business strategies.
The Group Managing Director, Alliance and General Insurance Mr. Ademola Aina who threw the challenge said that the current government efforts at growing the SMEs should be seen as presenting business opportunities for the insurance sector.
Mr. Aina therefore called on insurance companies to take advantage of the huge potentials in the small business by developing risk management services that will adequately serve the needs of the organized Small and Medium Enterprises in order to achieve sustained economic growth.
These revelations were made by the Alliance and General Insurance boss in a presentation focused on developing new products for under-served markets.
According to Aina, many Nigerian businesses do not appreciate and patronize insurance companies beyond the conventional policies due to the relative ignorance about its working and the sense of irrelevance of its policies to their daily life and business.
The Group Managing Director while speaking on the untapped market singled out the small business sector as the most neglected group and called on insurers to come-up with new products that will be relevant to the size, structure and budgets of the sector.
"it is a known fact that most developed economies are so because of the vibrant small sector that they have and if we are serious about taking our economy to the next level as shown by the present administration it is only natural for us to pay attention to the sector that can facilitate it"
speaking further "the government has put the enabling law in place for small business owners to access fund through the banking institutions but the insurance sector must leverage on their new financial strength to fashion risk transfer products that can adequately cater for the small business while taking their peculiar nature into consideration"
Aina disclosed that there are enormous benefits to be reaped by the nations’ economy when small businesses are adequately covered from risks inherent in their day to day activities.
Justifying his position, he declared that majority of businesses in Nigeria are found within the category and they still remain the highest employer of labour; by extension the sustaining sector of the masses.
He cautioned that total dependence on natural resources is not a healthy policy position for the country. Mr. Aina stated that the tax income to be derived from the small sector will go a long way in contributing to the nations’ annual spending citing Britain and America as countries with very vibrant small enterprise sectors impacting positively on their economy.
Meanwhile, Alliance and General Insurance has restated its position to play a leading role in new product development to herald its arrival as the one-stop-shop of risk management services in the market."Insurance has been perceived by a greater majority as the least relevant to their daily needs by the average Nigerian, all that will change in the days ahead" Aina concluded.