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Annuity transfer: Insurance faces tough times

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…lose control over choice of investment

The recent directive by the Federal Government ordering life insurance operators to transfer retirement life annuity in their custody to Pension Fund Custodians (PFC) is set to tell on the investment plans and profit profiles of the underwriters.

The fund transfer put at over N145 billion was orchestrated by the National Pension Commission (PenCom) following legal advantage derived from the amended Pension Reform Act 2014, which stipulates that all such funds be kept in the custody of PFCs. While this is yet to pan out, another agency of the Federal Government, Pension Transition Administration Directorate (PTAD), has requested that N19 billion legacy pension fund currently in the custody of some insurance companies be transferred to the directorate.

For the few underwriters who have commented on the development, it is obvious they have been speaking tongue-in-cheek for fear of going against the law as they know too well that the decision remains devastating to the industry.

The retirees’ fund transfer to the PFCs would put a halt to such pool of funds directly under the control and management of insurance companies.

Under the PRA 2014, investment of such funds are strictly guided by legal stipulation and have so far been restricted to securities to ensure proper monitoring and guard against possible fraud that had seen billions of naira of pension funds being diverted by corrupt individuals. In the current circumstance, although the insurers are still in a position to manage the funds such as the Pension Fund Administrators (PFAs), speculations are rife that PenCom will ensure the funds are invested according to the guidelines stipulated in PRA 2014.

Section 116 (1) of the PRA 2014 states: “Notwithstanding the provisions of any other law, no pension funds or assets kept with a Pension Fund Custodian under this Bill shall be used to meet the claims of any of the Pension Custodian’s creditors in the event of  liquidation of the Pension Fund custodian and neither shall the pension life annuity funds’ assets in the custody of any insurance company be seized or be subject of any execution of judgment debt or be used to meet the claims of any of their creditors in the event of winding up, liquidation or otherwise cessation of business of the insurance company in any case.”

This certainly would not augur well for the underwriting sector as retirement life annuity had provided a larger chunk of reserves for them to quickly meet up certain claims need, whenever a policyholder suffers huge loss, which claims cannot be covered by premium from general business alone.

Pensions, being funds with long maturity date, also provide managers of such resources the liberty to invest whatever is in their custody pending when the retirees either collects the lump sum or begins to draw from it. According to a document by the Nigerian Insurers’ Association, as at December 31, 2014, the industry had 27 companies transacting life business that recorded a total of N108.58 billion as gross premium, representing 35.02 per cent increase from the N80.42 billion recorded the previous year. In the same year, the companies’ gross claims increased from N34.31 billion in 2013 to N35.95 billion, representing an increase of 4.78 per cent while management expenses increased from N20.94 billion in 2013 to N23.60 billion in 2014, representing a percentage increase of 12.69 per cent.

Underwriters in this category include African Alliance Insurance Plc, AIICO Insurance Plc, Alliance and General Life Assurance Plc, Arm Lif Plc, AXA Mansard Insurance Plc, Capital Express Assurance Limited, Cornerstone Insurance Plc and Custodian Life Insurance Limited. Others are Ensure Insurance Plc, FBN Insurance Limited, Gold-link Life assurance Limited, Great Nigeria Life Assurance Limited and Industrial and General Insurance Plc.

Also included are Lasaco Assurance Co. Limited, Leadway Assurance Co. Limited, Mutual Benefits Life Assurance Co. Limited, NICON Insurance Plc, Niger Insurance Plc, NSIA Insurance Co. Limited and Old Mutual Life Assurance Co. Limited.

Others are Royal Exchange Prudential Life Insurance Co. Limited, Springlife Assurance Plc, Standard Alliance Life Assurance Co. Limited, UBA Metropolitan Life Insurance Limited, UNIC Insurance Plc, Wapic Life Assurance Limited and Zenith Life Insurance Co. Limited.

As at 2014, over N294.90 billion was spent on management expenses in five years, out of which life operators expended N73.99 billion. The expenses were incurred from underwriting, salaries, rents, commission to agents and more.

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