How not to build mega insurance companies

The Government and public desire to have mega insurance companies may remain elusive unless drastic steps are taken to correct the ways operators go about their merger and acquisition processes. Chuks Udo Okonta , in this report examines challenges affecting the realisation of mega firms and what should be done to make the dream possible.

 

The last insurance industry recapitalisation and consolidation was designed to evolve bigger – mega firms that should be capable to underwriter big risks and compete favourable in the globe space. But few years down the line, the dream is farfetched as the most companies that survived the exercise are still operating below expectations.

Worried by this development, the Federal Government has resolved to halt the registration of new companies and have declare interest to encourage the sale of many firms which it considered  on the shelf and distressed.

The Minister of State for Finance, Dr. Yerima Ngama, who spoke for the government, ordered the National Insurance Commission (NAICOM) to stop the issuance of new licences and encouraged any investor desiring to own an insurance company in the country to acquire some of the existing companies.

This, he noted, would enable the investors recapitalise them and start running the companies well.

He said, “We have so many insurance companies that are just on the shelf and distressed, but it is either we liquidate them or get some serious people to take them over.

“So, there is no need to issue new licences when they have several licences to take over. It is just like the banking system, if we have so many distressed banks, why should we issue a new licence to a bank, why not buy one of the distressed ones and restructure it?

“That is why the sector does not have a single distressed bank. So, the same thing with insurance, we have so many of them. Anybody who is interested in investing in them, is welcome to buy two or three of these distressed insurance companies, merge them together, recapitalise them and run the companies.”

According to a report obtained from the Nigerian Insurers Association (NIA) which states the market positions of firms as determined by their gross premium income written in 2011. Only 12 companies are considered to be presently controlling the market share of the insurance industry.

The firms as stated in the report are; Leadway Assurance Company Limited, which topped the list with 12.01 per cent and with a premium of N19.60 billion. It is followed by Custodian and Allied Insurance Plc; 6.17 per cent (N10.06 billion); AIICO Insurance Plc (Life)N10.01 billion; AIICO General Insurance Company Limited 5.16 per cent (N8.42 billion); NEM Insurance Plc 5.14 per cent (N8.34 billion).

Others are Mansard Insurance Plc 4.68 per cent (N7.63 billion); Industrial and General Insurance Plc 4.09 per cent (N6.67 billion); STACO Insurance Plc 3.97 per cent (N6.48 billion); Sovereign Trust Insurance Plc 3.93 per cent (N6.40 billion); Royal Exchange General Insurance Company Limited 3.61 per cent (N5.88 billion); Zenith General Insurance Company Limited 3.46 per cent (N5.64 billion) and Mutual Benefits Assurance Plc 3.35 per cent N5.47 billion.

According to NIA, about 90 per cent of the other operators are contending with the left-over markets.

Experts believe that the government, National Insurance Commission (NAICOM and operators need more to improve the state of the sector and possibly build mega firms.

The President, Nigerian Shareholders’ Renaissance Association, (NSRA) Olufemi Timothy, said the government, NAICOM and operators have to do more to unlock the market.

 "Insurance policies are not implemented like policies in other sectors. For an instance, if somebody can walk into my office and demand for my tax clearance, if somebody can say before you take a visa, you must produce three years tax clearance, if somebody can say before you can drive a car, you must have a driver's license, I do not know why the government and insurance regulator cannot enforce the laws on compulsory insurances.

"I do not know why the government cannot prosecute those who do not insure their houses. I believe there is no house that is preventable from fire mishap. Looking at the compulsory insurances in our laws, is anybody enforcing that law? The government must join hands with the operators to develop the sector for when the sector thrives, the government would get more taxes.

"Nothing stops the government and NAICOM from instituting a compulsory life insurance for every child that wants to enter school in Nigeria. And the certificate would be used as a qualification for admission into schools. To un-lock the business, enforcement must be a priority, as it is the reason why people do not buy insurance just as we have in other nations," he said.

Managing Director Riskguard-Africa Nigeria Limited Yemi Soladoye, called on operators to harness all the opportunities that have been provided by government and NAICOM to enhance their market share.

He urged insurers to improve on service delivery, adding that he has realised that service expectation exceeded service delivery, which now leads to customers’ dissatisfaction.

Experts said to actualise the dream of having mega insurance firms, mergers and acquisitions should be properly executed, as against the current approach where operators just eye assets and neglect human capital.

According to them the process of lying off about 90 per cent of the workforce of the acquired or merged firms as seen in the merger between Custodian and Allied Insurance Plc and Crusader Insurance Plc, can never bring about the desired dream.

According to the experts, the lying off, of the workforce of acquired or merged firms reduces the fortune of the supposedly big firm as the retrenched workers take their businesses along to new firms where they are engaged.

 

In the merger between Custodian and Allied Insurance Plc and defunct Crusader Insurance Plc, about 90 per cent of Crusader’s workforce, were retrenched and many of them have been re-engaged by other operators.

Though the Brand and Communications Manager of Custodian, Chukwudum Ofomata, said the merger has resulted to integration of skills, Information Technology (IT) and back office processes that will be to the advantage of the customers of the company, experts said the company’s would have made more progress if most of the workforce of crusader were retained.

The ‘own-it-all attitude’ also killed the proposed merger between Cornerstone and Linkage Assurance. The merger talk collapsed due to the sharing formula which was put at 30:70 per cent in favour of Cornerstone.

 During the 2012 Annual General Meeting (AGM) of Linkage Assurance in Lagos, shareholders asked the company’s board to discontinue the merger, insisting that if the company intends to merge with another firm, it should not be Cornerstone.

Speaking at the AGM, a shareholder, Nona Awo, threatened that shareholders would not allow the company’s board to rail-road them into a merger arrangement of 30:70 in favour of Cornerstone. He added that minority shareholders would definitely move against it.

In the same vein, President of the Nigerian Shareholders Solidarity Association (NSSA), Timothy Adesiyan, said: “We are not against merger of the company if the need arises but definitely, we will not merge with a Cornerstone.”

Managing Director Linkage, Godwin Wiggle, explaining why the merger with Cornerstone did not work; said the numbers which is the reason for the merger did not add up. He added that one of its shareholders increased its holdings from 17 per cent to about 53 per cent by injecting about 1.4billion into the company.

 “The indices of what propelled the merger in the first place suddenly did not add up and we just felt there was no reason for it to continue.

“Also the shareholders have the final say and because they believe their interest was not been considered, we had to respect their view by ending the merger. Presently we are building the company,” he said.

Industry observers are still hopeful that the insurance industry will rebound and take its rightful place, but they urged operators to look beyond their self interest and build institutions that should be able to outlive them.