Welcome address by Fola Daniel, commissioner for insurance at the interactive session between NAICOM and shareholders of quoted insurance companies at Eko hotel, Lagos.

Daniel

Welcome address by Fola Daniel, commissioner for insurance at the interactive session between NAICOM and shareholders of quoted insurance companies at Eko hotel, Lagos.

Protocols

It is my pleasure to welcome you to this interactive session meant to evaluate and discuss the performance of listed insurance companies in the Country. We will also be sharing with you the different perspectives and expectations of the various stakeholders and other regulators from the listed insurance companies at this forum.

I want to appreciate you for taking out time from you busy schedules to be here today. It demonstrates your desire and commitments towards the safeguards of your investments in the insurance industry. I want to believe that this session will be very rewarding, because at the end we should be able to proffer solutions to the challenges hindering the performance of most insurance companies in Nigeria.

This forum provides us with the avenue to review the performance of listed insurance companies and the level of their returns to investors. We also expect that it will give us the opportunity to review the kind of relationship that exists between the investor and the company.

Suffice it to say the main objective of every investor in a company is to get return on his investment by way of dividends, capital appreciation – rise in the price of stock and bonus issue. I want to believe strongly there can’t be other reasons while you shareholders parted with your hard-earned money to invest in these insurance companies besides the ones I have just mentioned.

It is often said that the best managers of business are the owners of such businesses reason being that are better focused at achieving their set goals and objectives. So if it were possible, you shareholders, being the owners of these insurance companies are in pole positions to manage the companies to achieve your primary objective of your investments.

But because you shareholders cannot participate in the day to day management of these companies due to your large number, you delegated your responsibilities, under corporate governance structure to the Board of Directors and management of the companies. They are as it were, to manage the companies on your behalf towards the attainment of your set objectives.

Now stakeholders’ satisfaction is achieved when the Board and management of these companies are able to achieve your objectives of investing in them in the first instance.

The question is; given the performance of listed insurance companies in Nigeria today, have they been able to achieve the investment objectives of the shareholders?

It is open secret that not many of these listed insurance companies make substantial profit if at all they make any profit. The direct consequence of this is that these companies are not able to pay you dividends, no bonus issue and no capital appreciation. In fact the price of most insurance stocks in the Nigerian Stock Exchange (NSE) remains at nominal value of 50k.

It may interest you to know that Nigeria has one of the most attractive insurance markets in Africa if not the world considering her population power. So if there are these potentials, why are most companies failing to deliver value on investments?

We are agreed that the industry is challenged by low insurance penetration occasioned by low income level of prospective consumers, low insurance education and, religious and cultural overview which are beyond the control of the operators. But notwithstanding these challenges, the market remains still attractive. This is evident in the fact that some few insurance companies, playing in this same market are always able to declare profit annually and consistently pay dividends to their shareholders.

What is it that these succeeding companies do right that the majority of the listed companies are not doing? I will tell you.

First, Pricing of Risk is very critical to insurance underwriting. How well an insurance company performs on a particular risk depends largely on how you are able to appropriately price the risk. So, if you are one of such companies that offer prices that are not commensurate with the risk you are taking, there is no way such a company will make profit. No company will make profit and pay dividends if it writes business for almost free, give rebates and gratis but pay huge claims on risk it collected little or no premium on. This is what most of these insurance companies do. The Group Life insurance of federal workers is a key example in this regards.

The second point is investment decisions. Insurance companies are expected to generate income from investment of premium received from policyholders. So it is imperative that the Board and management of these companies take good investment decisions to invest in ventures that will guarantee returns on investment. Companies who do this are the ones succeeding. But majority would rather invest as much as N5billion in failing subsidiaries that will never yield dividends and thus, no return on investment. The situation is made worst because these subsidiaries which are not insurance related are outside the regulatory purview of the NAICOM.

NAICOM has tried to arrest this development by putting a limit of not more than 25% investment of shareholders’ funds in non-insurance entities.

The third point is the issuance of policy on credit and bloated premium. Until the directives by NAICOM for strict compliance to the No Premium, No Cover policy by insurance operators in 2013, majority of insurance firms wrote business on credit. In most cases, these premiums are never collected and this had a negative impact on the bottom-line of these companies. We also had situations where companies bloated their premium income just to be seen to be doing well, but only to report a loss at the end of the day.

How do you reconcile a situation where a company reports a gross premium income of N12billion, for instance but goes ahead to report a loss of N4billion? It is because the gross premium as reported is a fraud and thus, nonexistent.

The last point I want to touch on quickly is management and underwriting expenses. This is a major obstacle preventing most insurance companies from making profit. The management and underwriting expenses of insurance companies in Nigeria are about the highest in the world and I wonder why it is so. In most cases, the gross premium incomes of some insurance companies are almost always eaten up by acquisition and maintenance cost which unfortunately, are largely un-receipted.

Having said all of these, I want to say that you shareholders also have responsibilities that you are not upholding. You have to note that delegation of your responsibilities to the Board and management of your companies does not translate to abdication. Most of you do not ask questions as to how well your companies are being managed by your representatives.

Beyond the Annual General Meetings which you attend, how often do you seek information and get satisfactory feedback from your Board and management? Do you engage in intelligent and constructive interrogation of the financial reports of your companies? If you are not doing this as a shareholder, it means you have no interest in protecting your investment. It also means that your objectives for investing in these companies are at variance with the ones I have earlier mentioned.

In conclusion, I want to say by way of advice that while you look up to the regulators for solutions, shareholders should have a change of heart and live up to its responsibilities by taken keen interest in what happens in the companies. It is also imperative that the various shareholders associations look inwards and purge themselves of fakes.

Thank you

Fola Daniel

Commissioner for Insurance/CEO