By Modupe Gbadeyanka
The inability to curtail their management expenses which surpasses their premium income may lead at least five insurance companies operating in the country into trouble.
According to Leadership Newspaper, the industry regulator, the National Insurance Commission (NAICOM) is not happy with the development because it had been persuasive in its approach to insurance companies to cut down on their management expenses and if this act affects their solvency margin, which would make them deep hands into their shareholders’ funds to run the affairs of the respective firms, NAICOM would be left with no other option than to sanction the affected insurers.
According to data sourced from the umbrella body of operators, the Nigerian Insurers Association (NIA), NICON Insurance Company Limited, in its 2016 financial year, generated N92 million gross premium and spent N453.7 million, translating to 4.93 percent on management expenses, while Old Mutual Life Assurance Company Limited had N1.30 billion gross premium and spent N1.83 billion, representing 1.41 percent on management expenses.
SpringLife Assurance Plc, on its part, had N32 million premium income and spent N105.2 million on its management in the same financial year, UNIC Insurance Plc had N38.7 million gross premium income and spent N244.9 million with Investment & Allied Insurance Plc having N4.3 million gross premium and spent N169.4 million on its management.
The regulatory body had earlier placed the likes of International Energy Insurance(IEI) Plc, Industrial and General Insurance(IGI) Plc, among others, on financial restriction, after it was observed that the companies deep hands into their shareholders’ funds, and would not hesitate to do same to these five insurers, if found culpable.
NAICOM had earlier said, from the observation made on financial accounts submitted by some companies, those with huge expenditure profiles have been mandated not to spend beyond certain limits.
The decision, according to the Commissioner for Insurance, Mr Mohammed Kari, was taken to ensure companies do not spend unnecessarily to the extent that they would not be able to attend to claims settlement.
He expressed his sadness over the continuous increase in management expenses of underwriting firms across the country, stating that, this is affecting their ability to give good returns on investment to their investors.
When contacted by Leadership, spokesperson of NAICOM, Mr Rasaaq Salami, said the regulatory body was unhappy over the consistent increase in management expenses of the insurance industry, but that, the regulatory body has adopted a persuasive approach to tell them to cut down on their management expenses.
According to him, “Of course, it’s their business, but where we have issue is if it affects their solvency margin and they deep hands into their shareholders’ fund.
“But the board of these companies are expected to curtail the spending of their respective management to ensure that they continue to give values to their shareholders.”
He also said NAICOM was working to address the issue of overriding commission which is also part of the expenses.
Earlier, President of Progressive Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie, said most insurance companies have yet to give good returns on investment to shareholders and investors, partly due to incurring huge management expenses as well as payment of huge fines to the regulatory bodies for default in the submission of their financial accounts.
He said shareholders react to the results a company releases, its dividend payout, its future prospect, saying insurance companies have failed in all these.
He believes insurance firms are the architect of their misfortune, saying, the money they use to pay fines and spend on management expenses on a yearly basis can comfortably give meaningful dividend to shareholders.
But the national coordinator, Independent Shareholders Association of Nigeria (ISAN), Sir Sunny Nwosu, felt otherwise, believing that the huge expenses are duly incurred in a bid to get good hands.
According to him, any company that wishes to attract best hands and retain them should be ready to pay.
He noted that the acclaimed huge management expenses is often incurred in a bid to engage capable personnel to drive affairs of organisations, stressing that good services are not cheap anywhere in the world and that organisations that want to be at the top should be ready to pay for the services of professionals.
“If you want the best you have to pay for it. If any regulator is coming to take up an executive job, in some of these companies, you need to know how much such person would earn and the salary becomes personal to that person.
“The regulator cannot just be in its cosy office and say management expenses are high. Go and ask for the regulators audited accounts, you would see certain things that you would not believe,” he said.
Meanwhile, most of the affected companies have been battling for survival owing to breakdown of corporate governance, while some are under regulatory intervention.
Adedapo Adesanya