Fola Daniel, Commissioner for Insurance
As allegations and counter allegations continue to trail the recent suspension of Alliance and General Insurance Company Plc by the National Insurance Commission (NAICOM) for alleged infractions, industry watchers say the insurance industry may suffer if the current crisis is not urgently resolved, reports Festus Akanbi
A new twist was brought into the suspension order slammed on Alliance and General Insurance Company Plc by the National Insurance Commission (NAICOM) as the affected insurance firm last week secured an injunction of a Federal High Court sitting in Lagos restraining the commission from carrying out the act. NAICOM, which announced the suspension of the trio of Alliance and General Insurance Ltd., A&G Life Assurance Plc and Fidelity Bond Insurance Brokers a fortnight ago, said the affected companies failed to comply with the provisions of the National Insurance Commission Act 1997 and the Insurance Act 2003. Acting on the recommendations of the industry’s Financial Reporting Council (FRC), the regulatory body also listed their offences to include non-rendition of accounts, misrepresentation and non-disclosure of liabilities, non-remittance of premiums and commissions, and corporate governance abuses.
The company’s Divisional Director, Corporate Planning and Strategy Mr. Dotun Onipede, who initially declined to comment on the issue when THISDAY contacted him last week, citing the sensitive nature of insurance business as the reason, however, said the order cannot hold as a result of the alleged misrepresentation of facts by the commission. He said two of the firms listed in the NAICOM’s charge list have ceased to exist. The management of the company had earlier in the week denied allegations of any wrong doings that led to the suspension of its operating licence by NAICOM. A statement from the company said the Financial Reporting Council was not thorough enough in recommending to NAICOM to suspend the management teams of A&G Life Assurance Plc and Fidelity Bond Insurance Brokers from operation because they no longer exist and the account in question had been withdrawn by the board.
“The two companies do not exist. Following satisfactory due diligence, both of them were approved by NAICOM for merger into one strong entity. NAICOM duly approved the merger under the new name Alliance & General Insurance Plc. It therefore implies that NAICOM suspended two companies that no longer exist.
“But since the suspended companies were the product of the current company, we are inclined to react in the interest of our shareholders, clients and other stakeholders,” the company said in a statement.
Harvests of Allegations
However, a company source who described the purported suspension as a personal vendetta against the company’s directors alleged that NAICOM was merely being used by an influential competitor who is desperate to take over some accounts from Allied and General Insurance Plc. The source, who pleaded not to be mentioned, said the insurance firm was shocked by newspaper publications on the suspension of its operation on Tuesday, August 7 whereas a formal letter to that effect was not received by the company until two days later, wondering why a regulator would prefer to make such a sensitive pronouncement in the media before conveying same to the affected company. He acknowledged that A&G played into the hands of its competitors when NAICOM raised some queries over its accounts at the last FRC meeting of Thursday, August 2. “Immediately the queries were raised, we went ahead to prepare a second account where all the issues raised at the meeting were addressed and we promptly sent a new version of the report to the council,” he explained.
The source said the company ran into murky waters by its failure to withdraw the first account, a development which he said the FRC lapped upon to recommend a punitive action against the company, which it accused of operating two accounts in its report to NAICOM. He alleged the regulatory authorities were in a hurry to punish A&G because it was not given enough chance to sort things out, saying the internal auditor who failed to withdraw the first report had since been suspended by the company’s board. According to the source, the company’s travails was centred on the struggle for the account of a federal government parastatals, Nigerian College of Aviation Technology (NCAT), which another source said is about to be hijacked from the suspended insurance firm. The source disclosed that A&G has been an insurer to NCAT and that the aviation school is currently owing the insurance firm N224 million. He said at the point of renewal of the business, a certain powerful force insisted the account should be given to a rival company, at a cost of N263 million.
“At that point, we raised an eyebrow, arguing that it smacks of double standards for a debtor-client to take its account to a new company when the outstanding debt has not been repudiated. Consequently, we contacted the Federal Ministry of Finance, which later directed us to the Ministry of Aviation,” the source said.
It was gathered that tempers continued to rise as the management of A&G rejected the option of sharing the account with another firm, insisting it should be handled 100 percent given the decision of the management to secure the service of an international reinsurance firm.
But NAICOM’s Assistant Director, Corporate Affairs, Mr. Lucky Fiakpa, in his response to THISDAY’s enquiries said the corporation had always maintained a close watch on the industry. Listing a number of interventions made by NAICOM in recent times, Fiakpa said, “Our mandate is basically to protect the insuring public, which in this case are the policy-holders. You may want to recall that in 2007 the commission took over the management of NICON Insurance and appointed an interim management to stabilise it.
“In 2011, the commission suspended the management of Investment and Allied Assurance Plc (IAA) from office and assumed control of the company. A team of tested professionals was appointed to manage the affairs of the company for an initial period of six months. The development was sequel to reports of findings from routine inspection of the company by the commission and the failure of the management to satisfactorily correct material lapses observed and brought to its attention by the commission”.
Fiakpa said A&G was suspended due to late or non-rendition of annual returns and audited financial statements contrary to Section 26 of the Insurance Act 2003, shortfall in minimum capital base contrary to Section 9 of the Insurance Act, deficit in policy-holders’ protection assets contrary to Section 25 of the Insurance Act, non-disclosure of significant transactions that could materially affect the true and fair view of the 2010 financial statements and misrepresentation of audited financial statements of the company for the year ended 31st December 2010.
In the case of Alliance & General Insurance Company Ltd, he said the infractions included late or non-rendition of annual returns and audited financial statements contrary to Section 26 of the Insurance Act 2003, non-disclosure of significant transactions that could materially affect the true and fair view of the 2010 financial statements thus making it difficult to determine the solvency status of the company and misrepresentation of audited financial statements of the company for the year ended 31st December 2010. The infractions in the case of Fidelity Bond Insurance Brokers, according to Fiakpa, included non- remittance of premiums and commission due to underwriters and brokers, poor corporate governance culture which could impair the operations of the company, non-disclosure of significant transactions in contravention of the provisions of NAICOM and Insurance Acts and non-renewal of operating licence.
Fiakpa said the argument put up by the management of the company on its ability to pay some claims recently could not add up. He said there was a difference between solvency and liquidity, saying a company could be technically-insolvent and yet liquid. He said: “Solvency is prescribed by law and it is usually tied to a minimum amount, in this case N3 billion or 15% of net premium (whichever is greater) for non-life business. Anything short of this amount would make the company technically insolvent. Solvency looks at the totality of the company’s liabilities to the policy-holders compared with available admissible assets to meet same. So it is not just a one shot payment of claim as is the case here.
Sanctioning a Dead Company
“The other issue raised is that there was no basis for sanctioning the two companies since they have merged into one entity following approval given to them by NAICOM.
“The merger they are relying on is a post-2010 event. The issues in contention are on the 2010 financial statements of the companies. So their defence does not add up at all.
“Again, as at 2010, no merger had been consummated. Even now, only approval-in-principle was granted by the commission as no final approval has been granted.
“Yet another issue raised in their statement to the media was that ‘the account in question had been withdrawn by the board.
“What led to the withdrawal of the said accounts was not stated. The fact was that the companies submitted two different sets of audited financial statements for each company for the year ended 31st December, 2010 and could not provide satisfactory explanations/justifications for this action, which clearly shows irregularities in the companies’ financial reporting format.”
He added that the companies could not provide relevant support to validate most figures reported in these financial statements.
Other sins listed included the alleged non-disclosure of liabilities of N507million due to Corporate Affairs Commission in respect of its staff retirement benefits scheme and the pending legal action on the company; non-disclosure in 2010 audited accounts, the company’s tax liabilities as well as liabilities on bank loan/overdraft facilities taken over by AMCON.”
He said rather than deal with the issues raised in the accounts by NAICOM, the companies decided to cancel them forthwith and commissioned a new auditor to prepare a set of fresh audited accounts for 2010. They also applied to NAICOM to withdraw the 2010 audited accounts and the restated version earlier submitted to the regulator. “Does this not speak volumes of the way the companies are run,” Fiakpa asked. He, however, said the company was still intact given the fact that what NAICOM did was to suspend A&G for six months to enable the company’s management sort out its account. He said the commission was determined to restore the licence if all issues could be resolved within the stipulated time. Meanwhile, the commission has assured members of the insurance industry that customers of the suspended insurance firms have nothing to fear.
No Cause for Alarm
According to him, the suspension meant that the companies could not underwrite any new businesses until the order was lifted, adding it wdid not affect policy-holders and customers in any way. “No problem with policy-holders. The companies are under suspension and cannot write new businesses that is all,” he said, adding that the interest of policy-holders and customers had been fully protected. An indication that the commission is poised to sanitise the industry was given by the Commissioner for Insurance Fola Daniel at a forum organised by the House of Representatives in Abuja where he disclosed that NAICOM had in recent times cancelled 32 licences of insurance brokers and suspended two others for various infractions. Although, the names of the 32 affected brokers were not disclosed, it was gathered that some of them had not been able to renew their licences. However, industry affairs commentators say the onus is on NAICOM to handle the A &G’s case in a way to position it as an impartial regulator in an industry, which is yet to fully maximise its potentials in the economy.