Reinsurers are moving away from long period of debt, Adejumo

Mr Adeyemo Adejumo, Managing Director of Continentental Reinsurance Plc in this interview with Patience Saghana recounts reinsurance companies’ experiences  since last year. He speaks on the need to deal with credible insurance companies and many more.
Excerpts

Mr Adeyemo Adejumo, MD/CEO, Continental Re Plc

What is your overview of reinsurance business?
Well, last year was good for most reinsurers all over the world even though there were a few big losses here and there. In Nigeria, we suffered major losses from one of the corporate clients but at the end of the day we still found out that our technical profit was still better, the reinsurance capacity is still in dire need and the players are still very few, so the opportunity still abounds in the industry.

We recorded increases in various aspects of reinsurance business but they were not as expected and we hope that our performance in 2010 will be better than that of 2009. We have got to the bottom of most of the provisions we made hence we are not likely to continue making huge provisions as we did in the last two years. Our Tunisian and Nairobi offices would start picking up and contribute to the company’s bottom line while we expect our oil and gas department to also enhance the company’s income.

We are taking a giant stride to improve our risk management and we have an in-house arrangement which we believe would assist us in managing our risk far better than we have been doing before. This would help us improve on our reserves, as well as our risk management, which will eventually rub off on our profitability.

Motivation is quite high in the organisation and expectations are also high on the part of all the stakeholders and we believe that in 2010 we are going to witness increase in our performance in Continental-Re. We are expecting a key staff from the southern part of Africa, who is going to assist us to enhance our profitability.

How far have you gone on CRe’s office project?
Well, Continental-Re is doing well, we have plans in place to build a befitting head office for the company in Lagos but the major obstacle we are having now is the acquisition of land for this purpose. We had many offers but unfortunately most of the offers we got look suspicious. So once we cross the hurdle of land acquisition we will start from the scratch and come out with our own head office. It is one major thing that has been giving me a lot of concern because it is one thing I want to do before retiring from the organisation and time is not on anybody’s side so the earlier we can do this the better for me and the company as a whole.

If we move our head office to our own property, it will also enhance our income because if the property appreciates it will reflect in our balance sheet. We can generate funds internally or from other sources to be able to put up a very good complex here in Lagos.

As for our regional offices, they too are making efforts to get their own places too.  In Cameroun we have been offered one or two places but the problems there is still similar to what we are facing in Lagos. All our regional offices have targets to generate income internally to invest in assets to showcase Continental-Re whatever they are operating and we believe that before the end of this year things will start falling in place and we will continue to move on better.

What is the possibility of insurance companies not heaping up debt again?
Remember that the provisions we talked about here are not only for outstanding balance, they are also for assets diminution as a result of stock market crash which was heavily provided for. The market is picking up now and I expect that to continue but then, we have also put in place strategies for managing our assets properly in such a way that we will decide on what to do with stocks that are not showing any sign of recovery in terms of prices while keeping those having prospects of growing further.

We have actually gotten to the bottom of asset diminution and we may not likely have much to provide for come 2010. We should be making profits now because if you look at our performance in 2008, we would have ended up with almost N1.8 billion profit if not for the provisions and for 2009 we would have ended up with over N2 billion profit if not for the same provisions.

It is better for us to clean up our books so that we don’t carry toxic assets than declare big dividends but at the same time we are not really doing fantastically and the prospect, sustenance and future of the company is jeopardised.

We have also put in place strategies that would ensure that we will not have that kind of a thing continentally, as far as business relationship is concerned. We are moving away from allowing a long period debt, you either pay or we don’t take the business from you and for existing businesses we are putting pressure on the clients to ensure that they pay promptly.

In every of the region where we are operating, we look at the top 20 per cent of companies that account for 80 per cent of our business and if we can manage those ones properly, the remaining 80 per cent that account for 20 per cent we will then manage thereafter. We are not doing it only for our Lagos operations, we are doing it globally but we will break it down to all the units such that everybody knows where to concentrate. We expect that some will drop along the way but we are also looking at areas where we can increase income on those that are existing and are doing better.

Our geographical expansion is part of the reason why we are also doing this so that if you realise that you are not doing well in some areas you can quickly begin to look for alternatives in such a way that at the end of the day there will be growth in not only the top line but also the bottom line.
Is capacity of insurance industry proportionate to the sector’s capital base?

In aviation, marine and in oil and gas businesses for instance, our capacity is still very limited. Yes, we have raised our capital bases to N10 billion, N5 billion, N3 billion and N2 billion for reinsurers, composite insurers, general insurers and life insurers, respectively but that does not translate into huge capacity overnight. If you look at oil and energy risk for example, they are huge and volatile, a big loss in the oil and gas sector may run into billions of dollars that could wipe off the whole industry.

So, why will we want to burn our fingers when we can manage ourselves in better ways? So the process of growing capacity is a gradual one and we will continue to increase our participation in support of the local content policy of the Federal Government.

Capacity is also improving in terms of finances and human resource. We don’t have the human resource to support some of these risks that are taken. We don’t have sufficient human resource knowledgeable and competent enough to oversee these areas of insurance business so we still have to depend on the foreign markets to do a lot of things in oil and gas and aviation insurance.

So, we must first of all re_organise ourselves to see what we can do to bring people up in this industry so that we will have experts who will be able to do these things for us here rather than rely on foreign experts.

What is you take on the market agreement?
The market agreement is good; we in Continental-Re support it.
That is the reason why we joined the NIA and we will make sure we do everything possible to guard it because we believe it is in the overall interest of the insurance industry.

At the level of reinsurance, anybody operating below the market agreement will run into trouble. Going by the last claim we had, the initial estimate was N15 billion, we eventually settled a little below

N7 billion, how much was the premium paid by the insured? We cannot continue business like that, so you either comply with it or you have your fingers burnt because if you don’t comply with the market agreement the reinsurers also have the right to say, ‘look this is not acceptable’.

An insurance company may be lucky not to pay any claims this year, but will it be that lucky next year? If other operators find out that an underwriter is fond of doing things unprofessionally many reinsurers will not be interested in doing business with such a company so the market agreement provides an ample opportunity for the operators to really wake up because we don’t want a situation where foreign reinsurers will begin to blackmail the Nigerian insurance market.

We should do things with utmost good faith not only within but also outside Nigeria because this is a business where we spread risks all over the world so there is no way we can keep everything within Nigeria.

How would you measure present day capital market?
Things are picking up in the stock market as you can see but we are watching as the situation unfolds. I naturally expect that to happen because as interest rate is going down and more people will not like to put their money in the banks, they will be looking for other opportunities.

There are basically two or three options for them, the stock market, real estate and they come up with business ideas that will give higher returns but many people avoid the third option because of fear of the unknown, lack of expertise and infrastructure, among other things.
Which companies do you refer to as credible?

Well, if we are looking at 20 companies that control a chunk of the market; that does not mean that the other 80 per cent are not relevant but we are into risk management and this does not preclude us from equally managing our own risks. So even when you look at the top 20, we also have to reappraise those top 20 to be sure that they are really top 20 and they are doing very well.

The fact that we have top 20 companies last year does not mean that those same top 20 companies are the ones you are going to continue to deal with this year, that they rated very high last year is not a guarantee that they will still remain on top this year and even if they are, there is nothing compelling you to deal with only the top 20. Out of the remaining 80, you will set new companies that are just coming up with better prospects. Some companies had a change of management or ideas and their profiles are rising. What I am saying is that there must be proper risk management from all angles and that is what we are doing Continental-Re.

Those companies that have not paid their premium still expect their claims to be paid when they arise whether we have collected premium or not but how do they expect us to pay their claims if they refuse to pay premium?

We are in a company with a growing concern where the stakeholders have expectations, so as you want to meet the expectations of your stakeholders,  I also want to meet the expectations of my stakeholder and I must be able to do everything possible to be able to achieve good results. So, companies must brace-up to the challenges ahead of all of us because it is a new era, a new season and opportunities are there for everybody.
We will all take advantage of the opportunities so that we will be able to do business together.