Capital Resources Verification Of Insurance Firms Kicks off Q2…NAICOM
The National Insurance Commission, NAICOM, said it has resolved to commence verification of capital resources of insurance companies in the country come second quarter this year.
The exercise, according to the commission geared toward providing security to protect policyholders and beneficiaries of insurance contracts against unexpected losses.
The commission explained through a circular to Chief Executive Officers and Board of Insurance Institutions in the country titled: “statement.of NAICOM’s regulatory priorities for 2017” dated 23rd January, 2017, that the verification entails verification of the assets and liabilities of all insurance companies.
The commission further advised the board directors of all the companies to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements for the year ending 31, December 2016.
It added that “all professionals that participate in the financial reporting chain are expected to ensure their duties in the valuation of assets and liabilities and issuance of opinion on financial report are discharged creditably in accordance with relevant laws and professional standards.”
It noted that the cost of the verification exercise will be borne by insurance companies, while adding that the modalities shall be communicated in due course.
Other issues and requirements that will engage the attention of the commission in 2017 as contained in the circular include, Market development; management Expenses of Insurance Companies; Statutory Returns; Risk based supervision; Information Technology; Competence of Directors Senior Management and Persons in Control Functions; Corporate Governance and service delivery by the commission.
The circular thus read: “The Commission will re-launch the Market Development and Restructuring Initiative (MDRI) with special and intensified implementation efforts on the following areas: Enforcement of Compulsory Insurance; Diversification of Distribution Channels; Increase in Access Points for Insurance Services; Micro Insurance; Takaful; Improvement in Data Collection and Promotion of Financial Literacy
The Commission hereby invites suggestions on the above items as well as the relevant elements of the National Financial Inclusion Strategy which is due for review in 2017. Such suggestions should reach the Commission not later than February 17, 2017.”
On Management Expenses of Insurance Companies it said:” The level of expenses of some Insurance Institutions is becoming a cause for concern. In this regard, the Commission 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.”
“A number of Companies submitted their statutory Returns for the year 2016 late. 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 is poised to implement relevant measures to discourage Companies Sent from my iPad
As regards Risk based supervision the commission said” the final road map for the Industry’s transition to Risk Based Supervision (incorporating all the suggestions made by the Nigerian Insurers Association), will be issued by the end of January 2017. 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.
it however 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.
The Commission noted that some Boards of Directors do not give adequate attention to the risk exposure of their business and the adequacy of their Capital. It is assumed that such Companies wait until the Commission informs them of the areas of concern and deficiencies in their solvency margin. The statement of compliance with Risk Management Guidelines appears to be issued without regard to the realities of the Companies concerned.
As a result of this, the commission advised the Boards not to see risks and solvency management as just an issue for compliance rather as a practice worth imbibing by prudent and effective Insurance Institutions. On the Commission’s part, appropriate measures and tools are to be deployed to ensure Companies that pose greater risk to the attainment of its regulatory objective receive more proactive and intensive supervision.
It added that the Boards will be expected to consider the Risk Register and solvency condition of their Companies during their quarterly Board meetings. With effect from 2017, the Commission expects each Company to send in report on Board’s assessment of their risk and solvency quarterly, as well as annual report on Own Risk and Solvency Assessment (ORSA). Furthermore, all Companies are required to have their appointed Actuaries issue a Financial Condition Report (FCR) of their Companies as at 31 December, 2016, not later than 31 March, 2017.
On information technology it said that:” there is no doubt that the application of Information and Communication Technology (ICT) is a critical success factor in the running of any business today and the Insurance Industry continues to explore the benefits it offers. Information technology applications
are catalyst to the development of any industry but not without its challenges, the most critical of which is security.
It said that “The Commission is to establish the framework for Information technology supervision of insurance Institutions and promote arrangements for efficient and more cost effective applications in the Insurance Industry.”
“Competence of Directors Senior Management and Persons in Control Functions.The Commission is concerned about the performance of some Boards and Managements as reflected in their work not only from compliance perspective but also in terms of strategic and operational choices they make. Our strategic approach to these challenges is to develop a mandatory competence profile for Directors and persons in Senior Management and Key functions in liaison with relevant organs of the industry whilst also considering a number of mandatory learning requirements/trainings for Directors, which shall commence in February, 2017.”
On Corporate Governance it said that expects all Directors of Insurance Institutions to rise up to the challenge of not only ensuring that their Companies comply with relevant laws but also that their activities take into account the interest of all stakeholders especially Policyholders and providers of Capital.
It stated that the Commission will pay more attention to the behavioural aspects of Corporate Governance and extract accountability from relevant parties, especially Directors and members of Management. Consequently, all Insurance Institutions are required to forward, to the Commission, planned schedule for their Board meetings for the year 2017 not later than February 10, 2017.
It said that in the course of the year 2016, the Commission collated data on the service expectations of Operators in the Insurance Industry with a view to incorporating same in a service charter. This the commission said it has been reviewed and it is being finalized into a draft document to be circulated for further inputs.
The commission assured stakeholders that is committed to ensuring timeliness in the rendition of its services, adding that is going to leverage on information technology to improve its effectiveness and reduce the regulatory burden of manual operations on Insurance Institutions.
It also called on the insuring public and the operators to forward all complaints about the service of the Commission should be forward to the SERVICOM Unit of the Commission for prompt attention.
It said that “there is no doubt that the Insurance Industry is going to continue to experience its share of the current economic challenges. The Commission recognizes the need to be innovative and proportionate in its supervision of Insurance Institutions and would be so guided appropriately. The Commission, however, expects that the avenue provided by Insurers Committee will be fully exploited to progressively improve the Insurance Industry’s contribution to the real economy in the manner and scale expected by stakeholders.