By Patience Saghana
Rather than doctor their books and report non-existing profits, insurance and reinsurance companies in Nigeria may have resolved to tell their shareholders the whole truth about their performance by publishing their actual results, Patience Saghana writes
Nigerian insurance and reinsurance companies are toeing the path of honour by making full provisions for the bad and doubtful debts. Many have been posting losses instead of doctoring their books to report profits that are not there.
The Commissioner for Insurance, Mr. Fola Daniel, appears pleased with the frankness of insurance and reinsurance companies that have held their annual general meeting and held nothing back from the shareholders and the public in terms of the losses they incurred in the year 2008.
According to him, â€œThe provision for bad debt is a good thing and one or two companies have published accounts and posted losses. That is better than cooking the books.
â€œWhen a company begins to reflect doubtful debts as part of its assets, it is only postponing the evil days, so, it is better to make provision for doubtful debts so that it will put the company on a pedestal that it can boast of any time any day. I salute the courage of the companies that have done their annual general meeting and had presented their accounts openly on the losses they posted.
â€œThat is not necessarily a weakness of those companies. What they have done is to adopt the correct approach to business and move on,â€ he emphasised.
Many countries, multilateral organizations and professional bodies are seeking out ways of checkmating these unethical practices by reviewing existing laws and rules, putting in place new laws, rules and regulations, and in addition, becoming more aggressive in investigations and enforcements.
In Nigeria, the amendment of the Nigerian Accounting Standards Board (NASB) Act in 2003 has further empowered the NASB to sanction auditors found wanting in the execution of their duties.
Furthermore, the SEC in a proactive response, on observing the spate of corporate collapses in the developed economies, collaborated with the Corporate Affairs Commission (CAC) and other key institutions to prepare a Code of Corporate Governance for public limited liability companies in Nigeria. This code was launched in April 2003. The code is aimed at inculcating the principles of transparency, accountability and fairness of directors and management of corporate entities.
The introduction of the Code in the market is an important milestone in the nationâ€™s quest for good corporate governance and the protection of investors. It contains extensive provisions for protecting investors, as well as measures aimed at ensuring corporate stability and sustainable growth.
Building Loss Reserves
Consequently, insurance companies are now building loss reserves in order to cushion the effect of the global financial meltdown and also lessen the impact of the crash in the capital market.
Loss Reserve is the amount set up by insurance companies as the estimated cost of a claim and insurance companies build up their loss reserve over the years to pay huge claims.
The nationâ€™s insurance companiesâ€™ loss reserve positions have improved considerably in the last ten years.
For instance, Leadway Assurance Companyâ€™s recorded 129 percent increase in its loss reserves which stood at N8.3 billion in 2008 from N3.8 billion posted in 2007. With a gross premium income of N21.7 billion in 2008 from N15.1 billion announced in 2007, the companyâ€™s net premium moved up to N9 billion in 2008 from N7.4 billion recorded the previous year. Profit before tax rose to N1.3 billion in 2008 from N1.2 billion announced in 2007. However, the company like most other companies felt the heat of the financial meltdown as its total asset decreased by one percent from N27.3 billion in 2007 to N27 billion just as the insurerâ€™s shareholdersâ€™ fund decreased to N5.3 billion in 2008 from N11.9 billion in 2007.
Mr. Oye Hassan-Odukale, Managing Director of Leadway Assurance said building up loss reserve is a major strategy for a long-term survival by any fast thinking organizations.
The company, he said construct its reserves for high and volatile risks.
Hassan-Odukale at the companyâ€™s 360 degree Brokersâ€™ Forum in Lagos last week Wednesday, pride itself in integrity and transparency saying it would not hesitate to present its accounts to the public just as it is.
Corroborating Leadway Assurance boss, Mr. Jimoh Ibrahim at the inauguration of Nigeria Reinsurance management team admonished the management of the reinsurer to be transparent in all their operations, adding that the board of the company would not take it lightly if per chance the account of the company was bloated for whatever reason.
He warned, â€œLet me also warn that we will ask question about the account but we will not ask you go and doctor your account. Present your account just the way it is because we are not under pressureâ€.
â€œI make bold to say Nigeria Re is one of the richest company in this country so we do not need anybody to give us colourised account to impress the world hence we do not want anybody to delete from what we have by any means whatsoever. Integrity of this organisation is Keyâ€.
Insurance companies that have published their accounts recorded losses due to the crash in the capital market and provision for bad debt.
Bad debts appear as an expense on the companyâ€™s income statement, thus reducing net income. In general, companies make an estimate of bad debt expenses that might be incurred in the current time period based on past records as part of the process of estimating earnings. Most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.
Audited report and accounts for the year ended December 31, 2008 of Cornerstone Insuranceâ€™s gross premium income rising by N1.037 billion or 37.36 per cent at N3.812 billion, as against previous yearâ€™s N2.775 billion. Loss before tax for the period stood at N432.487 million, as against a pre-tax profit of N386.583 million in 2007, just as loss attributable to shareholders of about N419.46 million, a decline from the preceding yearâ€™s net profit of N324.96 million. A breakdown of the figures showed that Cornerstone Insurance recorded a loss of 11 kobo on every Naira received as premium within the period, compared a profit per Naira of 11.71 kobo recorded in the corresponding period of 2007.
2008 audited result of Lasaco Assuranceâ€™s premium income for the year rose by about N561 million or 31.64 per cent to N2.773 billion, compared with previous yearâ€™s N1.773 billion, while profit before tax fell from N871.069 million to N491.09 million, representing an increase of N379.979 million or 43.62 per cent. Profit attributable to shareholders for the period also recorded a sharp decline of about N323.24 million or 46.97 per cent from N688.171 million in the 2007 full year to N364.931 million. This represents earnings per share of 2.57 kobo, which is almost a 50 per cent drop, compared with preceding yearâ€™s 4.8 kobo EPS.
Goldlink Insurance reported a premium income of about N2.568 billion, an increase of about N248 million or 10.68 per cent from previous yearâ€™s N2.32 billion. Profit before tax for the period improved by N101.63 million or 15.25 per cent to N767.678 million, compared with N666.048 million, while net profit at N679.726 million, represented a growth of about N85.738 million or 14.43 per cent from N593.988 million.
Niger Insurance Premium income for the period rose by N435 million or 17.47 per cent from N2.489 billion in the corresponding period of 2007 to N2.924 billion in 2008, out of which profit before tax fell to N401.458 million from N835.282 million, representing a drop of about N433.824 million or 51.93 per cent. The fall in profit attributable to shareholders for the period was even steeper at N205.979 million, which was N451.046 million or 68.64 per cent leaner than the N657.025 million reported for the year ended December 31, 2007. Niger Insurance will at its annual general meeting slated for the Tinapa Business Resort, Calabar, Cross River State release the result.
Regency Alliance was better, posting a premium income growth of about N495 million or 40.90 per cent from N1.21 billion in 2007 to last yearâ€™s N1.705 billion, of which N343.64 million was reported as PBT, up by N81.10 million or 30.89 per cent from N262.54 million, a year earlier. Net profit rose to N312.656 million from N237.54 million, translating to an increase of about N75.116 million or 31.62 per cent.
Staco Assurance grossed premium income of about N4.375 billion, up by N1.561 billion or 55.47 per cent from N2.814 billion, while PBT fell to N623.478, representing a decline of about N244.699 million or 28.18 per cent from previous yearâ€™s N868.177 million. Net profit of the company dropped by N215.562 million or 28.43 per cent from N757.982 million to last yearâ€™s N542.42 million.
Sovereign Trust Assurance gross premium income of about N3.811 billion, an improvement of about N1.324 billion or 53.23 per cent from N2.487 billion in 2007. PBT rose slightly to N415.657 million from N407.868 million, just as net profit stood at N360.795 million from N357.789 million.
Profit before tax for the year reduced by 31 per cent from N806million in 2007 to N557million in 2008. Again, this is attributed to the reinsurance debtorsâ€™ provisions and diminutions in the value of investments which is not unconnected with untoward happenings in the securities markets. Also, our balance sheet experienced a very marginal increase from N14.2billion in 2007 to N14.3billion in 2008, while shareholdersâ€™ funds suffered a marginal reduction of N0.6million from N11.8billion in 2007 to N11.2billion in 2008.
For Custodian & Allied Insurance, premium income increased in 2008 by N1.388 billion or 51.14 per cent to N4.102 billion from N2.714 billion, while PBT stood at N1.85 billion, an increase of about N794 million or 75.18 per cent over the preceding yearâ€™s N1.056 billion. Net profit rose to N1.559 billion from N916.949 million, which means that the management successfully grew bottom-line by N642.051 million or 70.02 per cent.
The growth reported by Prestige Assuranceâ€˜s gross premium increased to N3.008 billion, representing a rise of about N748 million or 33.09 per cent. PBT however limped by N98.491 million or 10.92 per cent to N1.0 billion from N901.509 million, just as net profit increased by N73.565 million or 11.52 per cent to N711.648 million, as against previous yearâ€™s N638.083 million.
Continental Reinsurance explained along with its result that it had to make bigger N198.924 million provision for doubtful balance for the period, resulting in a significant drop in profitability. Gross income rose to N5.275 billion, an increase of about N2.469 billion or 87.99 per cent from N2.806 billion, with N557.486 million gross profit down by N248.954 million or 30.87 per cent from N806.44 million. Net profit declined by N203.361 million or 30.05 per cent to N473.325 million from N676.686 million.
Total premium of Continental Re grew by 88 per cent from N2.81billion in 2007 to N5.28billion in 2008. Life business grew by 95 per cent from N637million in 2007 to N1.24billion in 2008, just as non-life business achieved an 86 per cent increase from N2.10billion in 2007 to N4.04billion in 2008.
The companyâ€™s investment income also grew significantly from N663million in 2007 to N1.46billion in 2008, representing a 121 per cent increase. Management expenses grew by 96 per cent from N624million in 2007 to N1.22billion in 2008. The increase is due partly to the significant provision made on outstanding premium balance and partly to growth in volume of business.
Mr Adeyemo adejumo, Managing Director of Continental Reinsurance Plc said that most insurance companies invested in the stock market though some tried to deny it or face the reality of it. He said, â€œThe only sad thing about the sector is that most of us invested in the capital market which is experiencing a slide at the moment and so we will not be able to see the impact immediately on our profit and loss but our premium income will continue to grow. If you look at our account, you will notice that we were able to grow our premium income by 88 per cent and this is not a small amount of moneyâ€.
Some of the insurance stocks are peaking. It may not be all, but I know that some insurance stocks are beginning to pick up. It is still the same issue of confidence in the insurance sector. Some of us are concentrating in oil and gas, banking, and manufacturing. The insurance sector is still new in the capital market. But by the time we start to release our results, there will be many improvements in the level of performance of insurance stocks. Our prices will begin to go up. For our company, we have been doing well; we have been appreciating since we released our 2008 resultâ€.