Ebere Nwoji
The National Insurance Commission (NAICOM) has said it will undertake a verification of the Capital resources of all insurance companies in the country in the first quarter of 2017.
The commission, disclosed this in a circular titled “Statement of NAICOM’s Regulatory Priorities for the year 2017” sent to chief executive officers and boards of insurance institutions.
NAICOM, in the statement, highlighted issues and requirements that will occupy its time in the current business year as re-launch of the Market Development and Restructuring Initiative (MDRI) with special and intensified implementation efforts on enforcement of Compulsory Insurance; diversification of distribution channels; increase in access points for insurance services, micro insurance, Takaful insurance; improvement in data collection as well as promotion of financial literacy.
The commission, said taking the above actions will enable it ensure protection of policyholders and beneficiaries of insurance contracts against unexpected losses of Insurance Companies.
The commission, however, said the cost of the above exercise will be borne by the companies adding that it will communicate the modalities to the insurers in due course.
The commission said this has become necessary because since the last recapitalisation exercise in 2007, the business environments and the risk profile of all insurance institutions have changed.
“It will entail a verification of the Assets and Liabilities of all insurance companies. In preparation for this, boards are advised to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements for the year ending 31 December, 2016. All Professionals that participate in the financial reporting supply chain are expected to ensure their duties in the valuation of assets and liabilities and issuance of opinion on financial reports are discharged creditably in accordance with relevant laws and professional standards,” said NAICOM.
Furthermore, the commission noted that the level of expenses of some insurance institutions is becoming a cause for concern. It said in this regard, it will pay more detailed attention to reasonableness of management expenses to ensure that each company’s level of expense is appropriate for its business model and does not adversely affect its profitability, liquidity and capital adequacy.
“The Commission will expect each board to take definite steps to ensure reasonableness of its company’s expenses by ensuring that they are incurred wholly and necessarily for the purpose of the business. Evidence of action in this regard should feature in the minutes of board meetings”, the statement added.
It also spoke on the level of compliance of insurance institutions with statutory returns with NAICOM saying that a number of companies submitted their statutory returns for the year 2016 late.
It added: “At the time of issuance of this statements, some are yet to submit the required returns and without explanation. “This deprives the commission, policyholders, insurance intermediaries, analysts and other stakeholders of the relevant information about the performance and financial condition of the companies, as well as the level of their compliance with relevant provisions of the law.”
The commission further said it is poised to implement relevant measures to discourage Companies from filing late Returns and sanction errant ones appropriately.
It said amongst others, this will include a detailed review of their accounting and financial reporting systems, restriction of certain activities until relevant returns are filed, action against officials accountable for financial reporting, as well as publicising the compliance status of insurance institutions on its website for public guidance.
It further said the boards of companies are expected to take interest in the timely filing of returns which, incidentally, contain information they need to effectively perform their oversight function, adding that non-rendition of returns is an indication of the failure of the Board.
“In order to facilitate the timely rendition of returns, the commission, will carry out a review of the current returns requirements and streamline them for more efficiency in preparation and submission. The transition to electronic submission will commence this year. All Companies are required to send in their suggestions on areas for improvement not later than February 10, 2017”, the commission said.
Speaking on Risk Based Supervision, one of the areas that will dominate the commission’s activity for the year, NAICOM, said the final draft will be issued by the end of January 2017. It said as indicated in the draft exposed last year, the commission already has components of a risk based solvency regime in place which will only be improved upon in the light of changes made in regulatory standards after they had been introduced and the operating context of the Nigerian Insurance Industry.
According to NAICOM,while it is acknowledged that some time will be required to install a full-fledged risk based solvency regime for the industry, the reality does not preclude the operators from paying attention to the risk to which they are exposed to, as a result of their underwriting, operational choices, and relevant drivers in the business environment.
It observed that that some Boards of Directors do not give adequate attention to the risk exposure of their business and the adequacy of their capital, adding that it is assumed that such companies wait until the commission informs them of the areas of concern and deficiencies in their solvency margin.
