The Nigerian Insurance Sector Palaver And The Nicon Factor

By Marshall Ifeanyi

Recently a Federal High Court in Abuja issued an interim order restraining the Federal Government from recapitalising and consolidating the insurance sector. Justice Anwuri Chikere granted the order, following a formal request by the Nigeria Re-Insurance Corporation and NICON Insurance, influenced by the core-investor:  a businessman and lawyer Barr. Jimoh Ibrahim. The request was granted exparte.

In a nutshell the order bars the Attorney-General of the Federation and the Minister of Finance from implementing the report and recommendations of the Presidential Committee on Insurance Capitalisation for now, which further puts the situation in the insurance sector in a dicey situation. There are indications that that National Insurance Commission (NAICOM) and the Nigeria Insurers Association may apply to be joined in the suit when the case comes up for hearing.

It seems the stalemate over the recapitalisation in the insurance sector is between Barrister Jimoh Ibrahim of NICON Group and others. Jimoh is a solo investor who stormed the privatisation market few years ago in full force with some acquisitions before taking over the NICON Insurance. He also acquired UBA Life Assurance, Bendel Insurance and Global Re-Insurance, which he merged into NICON Insurance and Nigeria-Re respectively. So far, the businessman has rebranded some of his properties with the name NICON, especially his hotels in Lagos and Abuja.

Shortly before the recent court’s order, the insurance sub-sector of the economy has been in the news since last year after the CBN successful recapitalisation of the capital base of banks. Considered the second biggest sub-sector after the banking sector it was bound to be the focus of attention, particularly as it is believed to perform below expectation. Before the court’s decision, the Finance Minister of State, Aderemi Babalola, had observed that the sub-sector is the weak link in the financial services sector, which comprises banking, capital market, and pension as well as micro-finance and primary mortgage institutions.

Before the commencement of the recapitalization exercise, majority of the Nigerian public had lost confidence in the sector. Claims long overdue were not paid. When paid at all they were characterized by sharp practices. Pensioners were the worse hit. Expectedly, the major insurance companies in the country were going moribund and near liquidation. Some of the government-owned insurance companies had to be privatized. The challenges faced by the sub-sector, among others included very poor image and low awareness occasioned by inadequate supervision and regulation as well as very poor financial reporting. Overall, the sub-sector was below basic minimum in terms of standards and expectations. The question of competence of the operators, their qualifications, remuneration and motivation were other factors while systems, structure, management and capacity were also of major concern to many industry players.

It was in this squalid state of affairs that the privatisation process met the sector with two of the biggest government owned insurance companies staked to the highest bidders. That was followed by the Federal Government’s directive on September 5, 2005 that operators should comply with the new capital base imposed on the industry on or before February 28, 2007. It was therefore expected that the success recorded in the recapitalisation in the banking sector would be replicated in the insurance sub-sector.

The exercise, which would have drastically changed the outlook of the industry, went well as some operators embarked on efforts to tidy up their accounts while others unable to meet the requirement found ways of maneuvering themselves to remain in business before the due date. However, less than two weeks to the end of the exercise, the former Commissioner for Insurance and head of National Insurance Commission (NAICOM), Chief Okechukwu Chukwulozie organized a certificate presentation ceremony whereby he presented two new letters of approval to the NICON Insurance group, in favour of NICON General Insurance and NICON Life Assurance Company Limited. In all, 71 operators were recertified by the Commission. But this sparked off protests by some aggrieved operators who complained of unfairness and claimed as well that licenses were issued to companies which did not meet the requirements.  Immediately the certificates were issued, allegations of favouritism were made against the government. The allegation centred around a certain amount of N463,057,145.32 which NICON Insurance ought to pay NAICOM which was waived by the federal government. NICON has defended the waiver that it was the amount supposed to have been settled by NICON Insurance under government control and was the reason for a letter endorsed by the former President Olusegun Obasanjo to the BPE waiving the said money.

The flood of petitions and protests led to the suspension of Commissioner Chukwulozie and the setting up of a panel chaired by Alhaji Bala Zakariya’u to review the exercise. Mrs. Nenadi Usman, the then Minister of Finance who instituted the review Committee said on receiving its report that “some of the major findings of the panel include that the conduct of the recapitalisation/consolidation exercise was grossly mismanaged because there were no evidence of confirmation of due compliance of the status of most companies with the increase in paid-up share capital, financial backing and payments into escrow accounts with the Central Bank of Nigeria (CBN). She subsequently announced the appointment of a technical Committee to undertake post verification exercise of the 71 companies recertified with the terms of reference which include: to review all submissions of certified insurance companies vis-à-vis the recapitalization guidelines, recommend appropriate sanctions where it is established that a company obtained approval without due compliance. The panel was also to recommend the ones that qualify for issuance of licenses and reappraise all institutional matters of NAICOM and recommend best practices and optimal staff levels. They were also to implement all technical issues arising from the approved recommendations of the NAICOM panel and any other matter considered necessary.

However, another controversy erupted because the technical committee was again chaired by Alhaji Bala Zakariya’u whose earlier panel reviewed the NAICOM recapitalisation exercise. Those who were favoured by the NAICOM exercise, particularly the NICON group, claimed that the review panel was unfair to them in its report. They questioned the rationale of appointing the same Zakariya’u whose committee earlier reviewed the exercise and who has vested interest in the industry being the Chairman of Niger Insurance Plc to chair the technical committee to, in effect, revisit his earlier recommendation.

These operators took their case to the court asking it to decide on the correctness or otherwise of the decision by the Ministry of Finance to ask the same set of people who reviewed the recapitalization exercise and made recommendations to go back and review their recommendations. For this and other reasons, NICON Insurance sought and secured court order restraining any interference or probe into its activities pending the determination of the suit.

It was discovered that the panel reviewed 69 companies out of 71 companies who possessed certificates and recommended three entities for the industry – life business, composite business and reinsurance business with recommended recapitalization for life insurance from N150m to N2b, general insurance from N200m to N3b, and re-insurers from N350m to N10b. The chairman of the panel, Alh. Bala Zakariya’u stated that “NICON and Nigeria-Re were left out of the review in deference to an earlier court injunction obtained by Barr. Jimoh Ibrahim against the review of both companies”. It is being speculated that the panel could have recommended an interim management to run both companies or in the alternative refuse to recognize the firms in official dealings. That is to ignore the companies to their fate, which could be dangerous to any company that seeks patronage of its clients and investing public. 

NICON Insurance, during its ownership by the federal government, was like an octopus. All other insurance firms, private and state-owned, behaved like its subsidiaries. It completely dominated the sector as the exclusive underwriter of risks for government agencies and institutions. To curtail its monopolistic tendency other major players in the industry clamoured for the privatisation of NICON Insurance. The campaign that started in 2000 eventually succeeded with NICON slated for privation but contrary to expectation of most players in that sector, a non-insurance person, Jimoh Ibrahim, won the bid through Assurance Acquisition Limited. Unimpressed, the regulator of the sector, NAICOM, raised an objection over non-professional and non-technical person in the insurance field to be a chief executive of any insurance firms not to talk of the largest in the economy, the NICON Insurance. The then chief Executive of NAICOM claimed that such provision was not in the Insurance Act. Other titans also saw it as abnormality.

Jimoh, a lawyer argued that he does not need be an accredited Insurance person before he could oversee and run the affairs of insurance firm he had acquired officially through the privatisation process. One of the points he cited was non-banking person, Prof. Chukwuma Soludo who is doing well as the Governor of the Central Bank of Nigeria, CBN.

The new owner took over a company with a pension liability in excess of N13 billion. So far at intervals payments have been made to institutional pensioners with the names of beneficiaries occasionally published in the print media. At the last open exercise where NICON paid its pensioners, there were glaring signs that the man Jimoh is bringing to bear some measure of expertise to revamp NICON and Nigeria Re. Under the new management, there is a different way of operation and in the new system, hassles which used to trail the sector have been drastically reduced. In the words of Jimoh, “It’s now a new system. No more hassles in getting claims as everything is now done online to make it easier for clients and pensioners”. Mr. Jimoh also said that NICON wished to correct the negative public impressions that it is not paying claims saying that there are claims running into several millions of naira but are not cash-backed. He told a body of reporters at his office in Abuja, that the payment is done with a view to put smiles on the faces of pensioners most of whom needed the cash to meet pressing needs such as school fees especially, now that schools are resuming. The company has paid out about N2billion and closed 46 institutional accounts. He urged the representatives of the different Board of Trustees of the various pensionable institutions to return evidence of payments to the beneficiaries to NICON. This he said would serve as checks and balances to ensure due payment.

To the average Nigerian in the face of the crisis rocking the industry, there seems to be a divergence of interests with different motives, just as there is declining prices of insurance stocks since the crisis started. However, standard practice should be the guiding principle in the regulation of the insurance sub-sector. All parties and stakeholders including the Ministry of Finance, Bureau of Public Enterprises, NAICOM, and the management of NICON & Nigeria Re must go back to the dialogue table and iron out the issues which if not well managed may continue to bring the industry to its knees.

The present situation still has many questions unanswered. The questions many Nigerians may probably be asking include: What was the state of the companies and insurance industry before and after Jimoh’s acquisitions? Do most of the members of the Review Panels have vested interest in the exercise? Does government have the powers to take over companies from new private owners? What is the future implication in the insurance industry with the recent court’s order? Does NICON have other motives for its huge payments for pensions and other claims lately? Does this effort impact on the sector? Apart from the argument by NICON’s lawyers at the court, could there be other reasons/forces against it? Has NICON fared well lately and will it continue in the same vein or is it a strategy to gain public support and sympathy? The drama is just unfolding.

The Ministry of Finance as the overall supervisory organ should ensure that the laws guiding the industry are followed duly in examining the reports and other petitions and give the parties involved fair hearing. They should not depart from the laid down rules and regulations especially in the face of the recent court’s order that the report of the committee should not be implemented until the substantive suit had been determined.

Marshall Ifeanyi

National Press Centre, Abuja

Robot  Villager

# 1 The Ministry of Finance as the overall supervisory organ should ensure that the laws guidin...Read the full article. Posted by Robot| 20.10.2007 07:52