Mr. Ganiyu Musa

The Managing Director of Cornerstone Insurance, Mr. Ganiyu Musa, spoke with Nnamdi Duru on the need for insurers to raise their capital bases beyond the statutory minimum and on the ongoing merger between his company and Linkage Assurance Plc. Excerpts:

Capital vs Premium Income
It is not unusual to have niche players. The regulatory requirement is N5 billion, but the truth is that if you have N5 billion there is very little you can do because you have to look at what you need to invest in infrastructure, technology, people, etc. If in a number of these things you have invest in before the income starts flowing, you probably need more than N5 billion.
Secondly, if you are going to play in some segments of the market, corporate, oil and gas, multinational sector, you will need more than the minimum capital. If you have a capital of N5 billion and want to insure a major industrial risk for instance, they are not going to take you serious.

At N5 billion, you have to make heavy use of reinsurance which will reduce your retention and the rest. So while it is possible to operate as a niche player with minimum capital, if you want to be broad based and essentially play in the corporate, oil and gas and the multinational sectors or to roll out a broad based strategy, I think you need more than N5 billion.

One is likely to conclude that there is gross under-utilisation of capital if you compare theN200 billion annual industry premiums to the total industry shareholders’ funds of N347 billion.

One of the objectives of the Market Development and Restructuring Initiative (MDRI) initiated by NAICOM is the N1 trillion naira industry premium income in the short to medium term target. I believe it is a realistic target if you look at the current level of insurance penetration but the question is, why have we not been able to move from the N200 billion to N1 trillion or more?

There are only few companies on a standalone basis with the financial muscle to invest in those areas of the business that will move us from the N200 billion as an industry to the trillion Naira level.

We all run after the same Nigerian National Petroleum Corporation (NNPC) business; Head of Service account and other major accounts, so the investment in infrastructure and technology that is needed to build a sustainable business model is not getting the desired attention because we don’t have the money to do that. So, there is the potential for business volume far beyond the level of capital that we have.

Impact on Market
Having been beaten in the capital market during the 2008/2009 crash and the capital market remains challenged at the moment, there are very limited opportunities for significant investment returns. So as insurers, we have to go back to the basics in terms of doing proper professional underwriting and charging appropriate prices.

Unfortunately, we are all chasing the same accounts and we tend to compete only on price basis. Competition is stiff at times and almost very brutal in the industry. So, we see competitive pressures on price being a significant challenge in certain segments of the market.
Again the focus really should be on the retail market, the personal lines market. There is a significant level of misunderstanding or mistrust on the part of the insuring public; we are still struggling as insurers to remove the garb of poor perception and we need to work on that and do a lot more in terms of consumer education.

NAICOM has taken the lead to put up a number of initiatives, to improve the perception and put in place consumer protection mechanisms to rebuild confidence in the public. But it is still challenging.
The adoption of technology is another area where we are seeing a lot of improvements, something we are trying to leverage on extensively. All these challenges provide ample opportunities for the innovative company. That is where we see the Cornerstone advantage going forward.

Cornerstone - Linkage Merger
The Nigerian Stock Exchange (NSE) has been notified of the intention of Cornerstone Insurance Plc and Linkage Assurance Plc to combine their businesses.

The 49 insurance companies post recapitalisation put together wrote N200 billion premium in a country of 160 million people; that is really very poor. The penetration ratio is very low, reported to be less than one per cent; less than one million adult Nigerians carry one form of insurance or the other.

If you compare that with 25 per cent penetration in the banking industry, you will see that the potential you have in the insurance industry is really outstanding. You probably have less than half of the operators writing premium income higher than their share capital which is usually a measure of the efficiency of capital utilisation by insurance companies.

One of the consequence of the fragmentation is the fact that very few individual insurance companies have the necessary financial capacity to make the investment that you need to make in human capital, technology and infrastructure to be able to really provide the type of service that will appeal to and attract the over 90 million adults out of the population.

Again, because capital is small, your ability to invest will be limited on one hand while on the other hand, your capacity to underwrite and retain risks is also dependent on the level of capital. When you are small and fragmented, there is only little that you can underwrite and retain. 
A number of the multinational risks tend to be de-localised or dislocated because they have very strict credit requirements such that only very few insurance companies meet their minimum credit threshold. As a result they don’t feel comfortable insuring in the local market. We concluded that we need a minimum size to be relevant.

There will be a lot of opportunities if we have the right capacity. In cornerstone, we have quality people but what we believe is that we need a lot more because we are expanding our operations. It takes time and resources to train and build an agency workforce to get to the level of experience that you require.

Again individual companies have different areas of strength.  In choosing Linkage, we took a lot of those things into consideration. We looked at the strength and the relative position of Cornerstone and that of Linkage. We are committed to a very high level of professional standard and ethics; it was a defining factor in reaching the first stage of considering a merger partner and interestingly in this area we share a lot in common with Linkage.

We did a bit of due diligence in deciding the appropriate merger partner for Cornerstone. We have looked at the records of the two businesses and concluded that coming together will augur well for all stakeholders including our staff, shareholders and more importantly the insuring public.

We believe the combination will give us the opportunity to come up with the appropriate products, engage the right skills and investing in the right technology that will enable us to deliver our services seamlessly to many people.

Indeed, Cornerstone is open for business 24 hours a day, from your laptop or smartphone, you can log onto our website and buy your motor cover and some other products that we have put on the Cornerstone e-platform, make payments and print your certificate on the go.

Presently, we have a little over 500 agents but we expect that with a combined entity in the next 24 months, we should have between 3000-5000 agents to cover all the nook and crannies of the country. We believe that while serving the commercial and corporate clients, the key to the development of insurance in this country is in retail customers or personal lines business.

Really we need to make insurance attractive and affordable to as many people as possible. We need to be able to do more in terms of consumer awareness and consumer education, we need to put in place the infrastructure to enable people buy your insurance. We are talking of mobile money now, in a few weeks you will be able to buy and pay for your cornerstone insurances on your mobile phone.  One needs financial resources to be able to invest in these platforms.

Nigeria is split evenly between Muslims and Christians; while insurance penetration is generally low, it is even lower among the Muslim population because there are certain aspects of conventional insurance that do not go down well with the Islamic faith.

Having realised that there is a huge gap in that area; Cornerstone decided that it is a segment of the market that should be addressed taking into account its unique requirements.  We invested in putting up an array of takaful and ethical products, backed by targeted communication and awareness campaigns to reach out to this market segment.

We believe that there is a lot of opportunity there, which we can leverage on with the right technology to reach out not just to people in the commercial centres but across the whole country. So, all those areas are being worked on in conjunction with Linkage Assurance and we believe combining our businesses will be to the benefits of the insuring public.

The necessary applications have been made to the Securities and Exchange Commission (SEC) and as soon as we receive the necessary approvals from SEC, we will go to our shareholders to ask for approval.

We are doing this is because we want to enhance the value for shareholders. This is their company and we believe it is the right thing to do. We believe it is going to be a lot more difficult for both companies to grow to the level expected if they decide to pursue their own separate strategies but if we come together, it will be to the benefit of shareholders of both companies.

The combined capital is going to be in the region of N12 billion, it is not the same thing as running N2 billion or N3 billion insurance and this will enable us to optimise our reinsurance.  We will have more retention than we were able to get individually and better terms and conditions from reinsurers than when we are operating individually.

In terms business development, there are some businesses that we are not qualified to do on individual basis, but the combined entity will qualify for these risks. Linkage is a general business company; we are both life and non-life, so the combination gives us the opportunity to market life insurance products to Linkage customers.

The footprint of the combined entity will improve significantly considering that the combined entity will take immediate advantage of the branch network available to both entities. It will also give the new entity an opportunity to reduce costs as we do not have to run two different applications and benefit from shared facilities.

At the end of the day, we expect the combination to be more than separate addition of the two. It can only be good for the shareholders, so the driving force is for the interest of shareholders.
Currently, Cornerstone has N6 billion capital and with N3 billion for Linkage, but by the time we account for the fair value adjustment resulting from the first time adoption of the International Financial Reporting Standard (IFRS) the combined entity is expected to have a shareholders fund of up to N12 billion.

Cornerstone’s Strategy
Achieving the strategy that we have set for Cornerstone is not a sprint event, it is a marathon and we need a lot of upfront investment, especially if we do so with a radical departure from the old ways and introducing new ways of doing business. Clearly, you will have setbacks initially.
Two years ago, we did not have an e-platform. Today, you are able to do your insurance with Cornerstone from the comfort of your home, office or car; such things take time. The area where we have not done as much as we wanted to is in the areas of the brokers market.

If you look at the structure of the Nigerian market today, the brokers control 70 per cent of the businesses. Initially, our strategy was misconstrued or misunderstood by certain brokers.  While we have set as a long term strategic focus to develop the retail market, we will continue to build very strong relationship with brokers.

We are always looking for creative and mutually acceptable ways of working with them within those parameters as has been defined by our board and management. Clearly, we believe that there are lots of opportunities for us to work with brokers and we will do that.  At the moment, we do a sizable per cent of our business with brokers. We believe there have been misconceptions in terms of the message we have put out there.

There is no company that will come out and antagonise a significant segment of its market; that was not our intention, if it appeared that way with our friends in the broking community. We still do enjoy a very good deal of, and look forward to an even greater level of, support and rapport with brokers.

Takaful Insurance
We have received the draft guideline from NAICOM on the operation of Takaful. The efforts of NAICOM are indeed commendable as they seek to deepen the insurance penetration by opening up this significant segment of the market. We believe it is the right thing to do and we are currently studying the guidelines.

We have had preliminary meeting with NAICOM and our preliminary observations have also been discussed with them. Cornerstone is committed to playing a leading role in this market and we will be working closely with NAICOM and other players to unlock the potentials here and improve financial inclusion among this significant but largely under-served segment of the market.

Profile of Ganiyu Musa
Mr. Ganiyu Musa is a management professional who has brought to the board of Cornerstone Insurance his wealth of experience in insurance, reinsurance, audit, and consulting, business advisory and financial management.

Before joining Cornerstone Insurance, Musa join African Capital Alliance (ACA) as Insurance Sector Specialist and a Director on the Board of Cornerstone Insurance Plc in 2011 and prior to that, he worked for African Reinsurance Corporation for 19 years, where he held key positions including Director of Finance and Accounts/Chief Financial Officer for 10 years and Deputy Management Director, Services for 5 years. He played a leading role in the creation and initial supervision of the risk management function at Africa-Re and supervised the design of the corporation’s investment guidelines and assets allocation.

The Cornerstone Insurance boss was also instrumental in the preparatory work and eventual setting up of the African-Re subsidiary in South Africa and served on the Board and Audit Committee of the company. Earlier in his career, he worked for Pannell Kerr Forster and Arthur Andersen &Co where he trained to qualify as a Chartered Accountant and gained experienced in audit and financial consulting.

Musa holds a B.Sc. degree in Business Administration and a Masters in Banking and Finance from the University of Lagos. He is a Fellow of the Institute of Chartered Accountants of Nigeria (FCA) and a member of the Chartered Insurance Institute of London (CII) and Chartered Insurance Institute of Nigeria (CIIN).