No fewer than 26 underwriting firms, which are into life insurance business in the country, may have lost N145 billion annuity fund in their possession to the pension industry, a development, analysts said, would further reduce the revenue base of the insurance industry, LEADERSHIP exclusively learned.
The pension industry may have succeeded in taking away the annuity business from the insurance industry, as findings have revealed that most of the life insurance companies in the country have been remitting their annuity fund to Pension Fund Custodians (PFCs) as directed by the National Pension Commission (PenCom).
Investigations also revealed that the few life insurers that were yet to make remittances have commenced the process of doing so.
One of the insurers told LEADERSHIP that: “We have commenced the process and about to finalise.’’
PenCom had earlier directed life insurers to remit the annuity fund with them to the PFCs and were given three months to do so, with the deadline set on February 3, 2017. It was also learned that players in the insurance industry had vehemently opposed to the deadline.
The opposition by the insurers led to series of meetings between the management of PenCom and the National Insurance Commission (NAICOM), but the meetings ended in a deadlock. Since the two rival sectors could not agree on what was best for both of them, insurers agreed not to implement the circular and sought the intervention of NAICOM, the Ministry of Finance and other stakeholders.
While discussions between the two sectors were ongoing, some life insurance firms were said to have silently gone ahead to implement the directive.
LEADERSHIP authoritatively gathered that the compliant insurers were unhappy that the two sectors could not agree, and were afraid of sanctions from PenCom when the deadline given to them to remit annuity fund to PFCs drew closer. Some of them told LEADERSHIP that this was also to allow them to take new annuity business.
Responding to an inquiry by LEADERSHIP, the director-general, Nigerian Insurers Association (NIA), Mr. Sunday Thomas, who has been at the forefront of engaging PenCom to reverse the directives, said he was unaware that some life insurers had complied with the directive.
“I am not aware that any company has complied, except if any voluntarily did that before the PenCom circular,” he said.
LEADERSHIP recalls that the director-general, Lagos State Pension Commission (LASPEC), Mrs Folashade Onanuga, had informed the retirees that the window was now open for those that would prefer life annuity services for receipt of their monthly pension and that their Pension Fund Administrators (PFAs) would now transfer the premium for the life annuity services to Pension Fund Custodians (PFCs) appointed by the life insurance companies.
She made this comment at the presentation of retirement benefit bond certificates to the 35th batch of Contributory Pension Scheme (CPS) retirees, in Alausa, Ikeja, Lagos.
Also, at a separate event in Lagos, Onanuga had stated that the management of annuity assets should remain solely with life insurers due to risk factors associated with the business, adding that the transfer of annuity assets to PFCs would ensure a proper safe valve for the funds.
She observed that since annuity business entailed underwriting risks, it should be fully domiciled with insurance companies, stressing that annuity operations were quite different from pension contributions which had no risk elements.
The director-general advised PenCom and NAICOM to quickly find a common ground in resolving the issues raised by the life insurers.
Analysts said that with this development, although the investment decision of the fund still resides with the insurance companies, the investment of annuity fund will now be subjected to investment guidelines of the Pension Act as insurers will not be allowed to invest their annuity fund in businesses not spelt out in the investment guidelines, unlike what obtained in the past whereby insurers could invest in whatever they chose to in order to make more profit.
Another implication of this development, according to the analysts, is that life insurers may not generate as much profit as they used to on annuity fund, while the little profit that may come to them henceforth would be shared between the respective insurers and PFCs.
On November 3, 2016, PenCom released a circular mandating all life insurance firms to return the N145.05 billion Annuity Fund in their custody to the PFCs.
The PenCom circular sent to pension fund administrators and custodians, and signed by its head, Surveillance Department, Muhammad Umar, said in line with the Pension Reforms Act (PRA) 2014, it had resolved that the custody of retiree life annuity shall henceforth be domiciled with the PFCs as provided for in Section 56 of the pension act.
PenCom mandated all life insurance companies currently providing life annuity for retirees under the Contributory Pension Scheme to open an operational account jointly with a PFC of their choice and advise the commission.
It maintained that all life insurance companies currently providing retiree life annuity under the CPS should transfer the corresponding assets in their possession/custody to the PFC of their choice.
The commission also noted that the approval of the new request for annuity should be put on hold with immediate effect until life insurance companies meet the custody and transfer conditions. PenCom said life insurance companies are required to open an account with the custodian of their choice and also execute custodial service agreement that shall state the terms and conditions of the contract between the parties.
LEADERSHIP reports that this is not the first time the insurance industry would be losing its business to a rival sector; in the past, it had lost several businesses to poaching by some sectors.
Industry watchers said the greatest undoing of the sector is that when businesses such as health insurance, agricultural insurance, and pension, among others, and now annuity fund, were being snatched from underwriters, they did not protest; they accepted their fate without much questioning.