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MARCH 12, 2007 VOL. 20. NO 22

A New Face

**Jimoh Ibrahim**

As the deadline for recapitalisation in the insurance industry expires, developments that will shape the sector begin to emerge
By Ganiyu Obaaro
Last Wednesday, February 28, 2007, 71 insurance companies operating in the country breasted the recapitalisation tape as part of efforts by the National Insurance Commission, NAICOM, the sector’s regulatory body, to rejuvenate the industry. They included 43 non-life insurance companies 26 life insurance companies, and two re-insurance companies. The new operators include, AIICO Insurance Plc, ADIC Insurance, Lasaco Assurance Plc and Niger Insurance Plc. Apart from the new and more vibrant groups that emerged, the industry would, in some cases, witness new helmsmen, as their previous chief executive would have to be swept off by the recapitalisation exercise.
Workers in the once-burgeoning industry are equally apprehensive that their ranks would be depleted, especially in the not very critical areas like administration, even as new entrants are equally envisaged. The huge funds that would accrue therefrom, and the attendant infrastructure growth especially in the area of information and communication technology, ICT, are critical developments that would shape the industry in the post-capitalisation/consolidation, similar to the banking sector.
The road to the current developments in the insurance sector began on September 5, 2005, when the Federal Ministry of Finance announced a comprehensive reform in the sector, to fast-track it and enhance its global competitiveness. Former Minister of Finance, Ngozi Okonjo Iweala announced the recapitalisation order. At a crowded press conference in Abuja, Nigeria’s capital, Okonjo-Iweala, had told operators in the sector to embrace the reform in line with the economic reform agenda of President Olusegun Obasanjo. The former minister, however, gave them 18 months beginning from that September till February 28, 2007 to comply. According to her, operators wishing to remain in the industry must shore up their capital base as follows: Life, N2 billion, non-life, N5 billion and reinsurance N10 billion. Previously, the capital base for life, and reinsurance were N150 million and N350 million respectively.
They were also ordered to merge, acquire weak outfits through strategic partnership or alliance.
The Source learnt that the Insurance Act of 2003, which came into effect under the former Commissioner for Insurance, Oladipo Bailey, seeks to address the poor financial position of the operators and re-position them for the challenges ahead.
Because of the continuously low performance of the industry, inspite of the Act, NAICOM again sought the government's help to take it out of the woods.
Emmanuel Okechukwu Chukwuelozie, commissioner for insurance and boss of NAICOM, urged the over 108 operators in the crowded sector to face the challenge, promising to assist them to keep faith with the recapitulation order. Chukwuelozie said he envisioned a more robust and vibrant insurance industry similar to the banks, which recently recapitalised to the tune of N25 billion each, and had since embarked on consolidation drive.
According to him, the insurance industry requires change to make it more competitive.
The lucrative oil and gas and aviation insurance and the multi-billion naira railway projects, are also areas Chukwuelozie want operators to show keen interest in. According to him, the 45 per cent local content offered by the Federal Government is juicy enough to assist the sector. The NAICOM boss, thereafter, rolled out guidelines to aid operators who may wish to participate in the oil and gas sub-sector of the industry. The guidelines stipulated that “either exploration or production/reforming gas in Nigeria, shall comply with sections 33,36, 45 and 72 of the insurance Act, all Insurance policies, for the Nigerian oil and gas operators shall be issued by a registered Nigerian insurer and /or consortium of the Nigerian co-insurers and negotiations of appropriate insurance quotes, terms and conditions for Nigeria oil and gas operations shall be conducted by the insured and his broker(s)."
Since the past 18 months, activities in the insurance sector have heightened. The operators under the aegis of National Insurance Association (NIA), had signed several Memoranda of Understanding (MOU), for either mergers or acquisition. The Source gathered that similar core values and vision helped in the strategic alliances / partnerships, even though several of such mergers have since collapsed, with members going their separate ways.
For example, in the first quarter of 2006, Equinox group comprising Elmac Assurance, Atlantic Insurance and Admiral Insurance, made history, emerging the first to announce a merger. But like a pack of cards, the group scattered and went their separate ways. Similarly, Accen group, comprising Accen Insurance, Worldwide Insurance and Royal Trust Insurance, which initially agreed to work together, collapsed. In both bases, irreconciliable differences and personal ambitions over who would lead the group were said to have caused the collapse of their marriages.
About 20 groups/firms initially emerged. Although the NAICOM boss did not give the names of the firms which had crossed the recapitalisation hurdle then, powerful operators such as National Insurance Corporation of Nigeria, NICON Plc, Cornerstone Insurance Plc, IGI, Niger Insurance, UBA Insurance, Goldlink Insurance Company Limited, Guinea Insurance Company, Law Union and Rock Insurance Plc, Leadway Assurance Company Limited and Standard Trust Assurance Plc, are believed to have made the list. Penultimate week, Jimoh Ibrahim, group managing director of Global Fleet, owners of NICON Plc, said he has surpassed the two billion naira required by NAICOM.
As the recapitalisation reached its feverish stage, the following groups unveiled their merger plans, and through court-ordered Extra-Ordinary General Meeting, fused together. Royal Exchange Assurance Plc; comprises Phoenix Assurance Plc and African Prudential Insurance company; Intercontinental Assurance – Intercontinental, Kapital Insurance and Global Insurance; Linkage Assurance and Central Insurance company, have also formed a strategic partnership.
Already, the Securities and Exchange Commission (SEC) and NAICOM, both regulatory bodies, have given the companies approval-in-principle to operate, even as a few say they will stand alone. Those in this group include Cornerstone Insurance Plc, Oasis Insurance, and Niger Insurance Plc.
The entry of some banks into the insurance sector is a development, observers contend, that would stimulate healthy competition. To them, the banks would leverage on their huge funds, infrastructure and personnel to excel. Among the banks that have veered into insurance business are UBA Plc, Wema Bank, which acquired Great Niger Insurance Plc and Zenith General Insurance Company and Oceanic General Insurance Company Limited.
Prior to these mergers, most of the insurance companies had sought additional funds through the capital market, to shore up their financial base. Last year, under its former chief executive, Funmi Babington-Ashaye, Cornerstone raised additional N1.94 billion through its highly successful Initial Public Offering (IPO), to bring its total shareholders’ fund to over five billion naira, well above NAICOM’s requirement of five billion naira for life insurance business. The company, which has since appointed Dominic Ichaba to act as CEO following the resignation of Babington-Ashaye, says it has “positioned itself to attain the five billion naira shareholders’ funds, to write both general and life businesses post-consolidation.”
Rasheed Bolarinwa, head of brand management, told The Source that his company would continue to re-engineer in order to remain competitive in the industry. According to him, Cornerstone Insurance has been the most active stock in recent weeks, accounting for nearly half the total turnover in the insurance sub-sector. The company churned out 161.83 million shares, worth N307.18 million in 347 deals, out of a total turn-over of 326.79 million shares valued at N871.84 million, traded in 1,971 deals. He said his company showed its rich pedigree among other firms a few days to the February 28 deadline, when investors showed their preference, as its turnover rose to 86.9 million worth N129.88 million in 321 deals, showing 44.4 per cent of the total turnover in the sector.
Niger Insurance, headed by Justus Uranta and AIICO Insurance Plc are some of the operators who placed IPO and shopped for additional capital at the floor of the Nigerian Stock Exchange, just like the banks.
As causalities begin to take place in the sector, following the resignation of Babington Ashaye, more job losses, in both executive capacity and in other ranks, are likely to dot the insurance landscape in the immediate post-capitalisation era.
Jarvis Erhomosele, general secretary of the Association of Banks, Insurance and other Financial Institutions, ASBIFI, told The Source that “the fears and expectations in insurance are the same with those in the banking sector.” He said his body envisages that more workers would be sent to the saturated unemployment market. But he warned employers to comply with the “collective agreement” if they intend to sack their workers, or they would face the wrath of the union.
As the nation awaits the new operators, Aiico Insurance, which is merging with NFI Insurance Plc and LAMDO Insurance and Custodian and Allied Ansurance Plc say they have got approval-in-principle from SEC to split into life and general insurance businesses in line with NAICOM’s order. The regulator has given the insurance companies doing such businesses to do so latest by April 30, this year.
In an addendum to the recapitalisation order, NAICOM also told the operators to keep 10 per cent of their statutory deposits with the Central Bank of Nigeria, CBN, keep outstanding premiums in an escrow account, while money raised from private placement or public offer from the capital market, should be lodged with the CBN, not later than two weeks after its verification by NAICOM. Analysts opine that the NAICOM step would safeguard investors’ funds.
Stakeholders say they expect better operations in the sector. Sunny Nwosu, national co-ordinator of Independent Shareholders Association of Nigeria, for instance, told The Source that the image problem facing the industry would change for good. He also reasoned that they will have bigger funds to go into other areas of insurance, like the oil and gas sub-sector. According to him, “after consolidation, we will be able to separate the boys from the men."
Perhaps, this made Ibrahim to announce that he was ready to do greater business. According to Ibrahim, who was the preferred bidder for NICON in an auction organised by the Bureau of Public Enterprises headed by Irene Chigbue, NICON has reduced pension liabilities inherited from the old NICON, from eight to six billionnaira. The boss of Global Fleet group was also excited at the certification of the Nigerian Re-insurnance corporation, (Nigeria-Re) by NAICOM to transact both life and non-life re-insurnance business, having met the minimum requirement. The Source learnt that NICON is, however, under fire by pensioners from the National Museum, who accused the insurance giants of defaulting in the payment of their outstanding pension. For these category of pensioners, the six billion naira NICON paid to the National Agency for Food Administration and Control, NAFDAC over the fire incident that gutted its Kaduna office, is unmindful for as long as theirs remain unpaid.
Chief executive of insurance companies are also optimistic of a better future. Uranta, CEO of Niger Insurance Plc, for one says the industry has great potentials. His company’s asset base is in excess of eight billion naira, while the pre-2006 share capital was above N750 million, even as he vowed to maintain life and non-life businesses to remain the investors’ delight.
Over the years, the insurance industry has battled with a number of problems, including bad image, poor returns on investment, poor infrastructures and low public awareness. Because it became an all-comers affair, harbouring well above 200 operators, sharp practices were rampant in the industry, forcing many potential Nigerias to distant themselves from the sector. Again, late or non-payment of claims discouraged many people from patronising them.
All these, NIA says, will soon change. Ezekel Chiejine, its chief executive said that henceforth his members are ready to bring modern touch to insurance business in Nigeria. This optimism was also shared by Femi Okunniyi, managing director of Goldlink Insurance. For him the insurance sector will soon rub shoulders with the banks, similar to those of developed countries such as Germany, France and Britain.
The Source learnt that unlike in the Nigeria case, where insurance ranks below the banks in capitalisation, the opposite is the case with the advanced economies, where insurance businesses occupy the leading position.