Although the National Insurance Commission (NAICOM) has disclosed the insurance sector life annuity fund por\tfolio stood at about N323 billion as at the end of the second quarter of 2019, reports have it that operators’ balance sheets have been negatively affected by the annuity business.
According to data obtained from the Nigerian Insurers Association (NIA), out of the 11 life assurance companies that took annuity business in the 2018 financial year, five recorded losses.
Investigations on the firms that suffered losses revealed that they decided to minimise the uptake of annuity due its low returns on investment, volatility and inflationary pressure.
In fact, three of the affected companies have put off underwriting annuity for the time being while the other two have decreased their annuity business volume as profits continue to dip.
According to industry sources, the annuity business has not been profiting to most life insurance companies because of the pricing mechanism and inflation which tend to overshadow the premiums paid by annuitants.
They asserted that the fact that some pensioners now have longer life duration than those in the previous years, has compelled annuity to be a risky business for some insurers.
Worried by this development and the impact it will have on its financial stability, AIICO Insurance Plc, African Alliance Insurance Plc, LASACO Assurance Plc, Niger Insurance Plc, Royal Exchange Plc, have decided to slash their annuity businesses they write until the status of the business becomes better yielding.
It will not be surprising if more insurance firms decide to either suspend or slash their annuity business volume in the next couple of months in line with set precedent.
Speaking on the issue in a media interview, the Managing director/CEO, Niger Insurance Plc, Mr. Edwin Igbiti, said, interest rate and pricing of annuity plan are a major challenge, adding that, his company decided to reduce annuity intake and concentrate more on annuitants already in the books of Niger Insurance Plc.
Igbiti noted that currently, his company is paying its annuitants as and when due, so, limiting annuity business was purely a business and investment decision.
He however noted that low awareness on annuity as well as de-marketing of annuity plan and the desperation of most Pension Fund Administrators (PFAs) to still keep pensioners’ contributions in their coffers, are the issues that must be addressed to realise the full potential of annuity in the insurance sector.
According to him, “the way annuity business is now, it is better to concentrate on what (annuitants) you have on your books than bringing in new annuity business. To get the pricing right, you need an in-house Actuary because you need to be monitoring the pricing on a regular basis. Annuity business still has potential if the business investment climate is right”.
Speaking to Daily Sun, the General Manager, Life Business, LASACO Assurance Plc, Mr. ‘Dimeji Olona, said his firm has stopped taking new annuity businesses since the beginning of the year, even though, the company has never been a major player in annuity market.
“We are not a major player in annuity, and the way the fund works, you have to be careful so that you don’t run the fund aground. Because of the low yield and other interest rate, what we have done is to stop further taking of new annuity and ensure that all current annuitants are paid as and when due”.
Olona disclosed that every annuitant of LASACO gets paid on the 22nd of every month, hence, are not affected by the new development, adding that, “But the new ones, we need to be very careful because LASACO is based on integrity and trust is very important to us. For us, we are very sensitive to what is happening around, and we have not taken any new ones, we are servicing all our existing annuitants.”
Similarly, the Managing Director/CEO, African Alliance Insurance Plc, Mrs. Funmi Omo, said: “Our Q4 2019 financials show a marked progress in our strategy to expand our retail presence and aggressively grow our market share despite suspending our largest line of business; annuity.”
For Royal Exchange Plc, its spokesman, Mr. Wilson Okoh-Esene, said: “We (Royal Exchange Plc) took a position some years ago not to take new annuities and so we have just been managing the ones already in our books”.
However, there are ongoing plans by NAICOM and PenCom to review annuity business regulations so as to tackle some of the highlighted challenges as well as empower insurance agents to market annuity products.
Speaking at the 2020 NAICOM seminar for Insurance Journalists in Kano State, the Deputy Director/Head, Research, Statistics & Strategy Directorate, NAICOM, Mr. Gbolahan Adewale Suleiman, disclosed that the two regulators are reviewing the existing regulations on annuity business, which, he said, is gradually attracting the needed attention from retirees.
Suleiman pointed the guideline became compulsory due to the current trends around annuity business, noting that, when the guideline becomes operational, only insurance agents will be allowed to sell annuity plan on behalf of insurance companies.
He stressed that any insurance broker that is interested in the sale of annuity should be ready to earn agency commission.
According to him, the step is taken to protect annuity funds against huge commissions earned by intermediaries.
Earlier, the Acting Commissioner of Insurance, Sunday Thomas, hadexpressed optimism that substantial part of the N10 trillion pension assets will find its way into the insurance portfolio.
NAICOM, he said, is working assiduously to put in place measures to protect the expected funds.
According to him, this informed the move to raise actuarial analysts who will help measure and manage insurance associated risks.
“Annuity requires day-to-day measurement and management of its activities. As I speak with you right now, annuity accounts for about 40 per cent of our portfolio. That actually requires our attention.
“We have also read that contributions into the pension portfolio is in the neighborhood of N9.9 trillion, closed to N10 trillion. So, substantial part of it is supposed to empty itself in the insurance portfolio. How do you manage this if you do not have those who have what it takes to measure and manage the associated risks?” he queried.
The Retiree Life Annuity (RLA) is an insurance product and one of the available retirement benefit options for retirees. The product can be purchased from a life insurance company licensed by the NAICOM and authorised to sell RLA under the regulation of retiree life annuity.
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