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NNPC’s captive company call back N8.5bn from CIP

By Patience Saghana
The Captive Company of the Nigerian National Petroleum Corporation (NNPC) scraped back $57 million from the premium paid on its Consolidated Insurance Policy (CIP) into the purse of the corporation.

NNPC’s captive firm generated $57million (N8.5billlion) premium for its CIP as at December 2009.
The term ‘Captive’ is used generally to describe an insurance company that insures the risks of its owners who are not in the business of insurance.

In its simplest applications, captive is a means of self insurance but the reality is that many captives now buy reinsurance and do a proportion of their business with third parties which was what NNPC did.

NNPC, owner of its captive clearly desires it to remain solvent and profitable bearing in mind that all or much of a captive’s business involves insuring the owners risks, the claims records of captives tends to be much better than a normal insurer. This also is recognized in the reinsurance market and the premium rates for captives can often be substantially less than for onshore insurers

The corporation’s captive company was established in 2008 with the approval of the presidency in line with the NNPC’s risks exposure strategy

Having save some cost two years ago, NNPC increased the proportion of its captive company to 51.5 in 2009 from 15 percent in 2008 from which it generated $28million (N4.2billion) in order to edge against excessive increase in premium.

The experiences of the corporation in the placement of its insurances in 1996 and 2001 led to the adoption of the global business standard of confidentiality and non-disclosure of material facts and unauthorized parties in the placement from 2001.

It was against this backdrop the insurance companies take oath of secrecy with the insured, NNPC, and  agreed that “Confidential information means any kind of information in whatever form whether disclosed orally or in writing or whether eye readable, machine readable or in any other form including, without limitation, the form, materials and design of any relevant equipment or any part thereof, the methods of operation and the various applications thereof, processes, formulae, plans, strategies, data, know-how, designs, photographs, drawings, specifications, technical literature and any other material available by one party to the other party or gained by the visit by one party to any establishment of the other party whether before or after the date of this agreement for the purpose of considering, advising in relation to or furthering the purpose.”

Furthermore on the NNPC account, the insurers agreed to “maintain the same in confidence and, save as provided herein, not to divulge any of the confidential information to any third party, not to communicate, indicate or suggest to any third party the existence of the purpose, except as required in the ordinary course of business.”
The insurers also agreed not to “disclose the same whether to its employees, or professional advisers except in confidence to such of its employees or professional advisers who need to know the same for the purpose and to impose upon such person obligations of confidentiality equivalent to those contained herein (and to be responsible for any breach of the terms of this agreement by its own employees or advisers).”

The premiums paid on the corporation’s insurance business in the last ten years, according to NNPC are: $17.7million in 2001. The premium paid on the business was $42.5 million in 2002, $44.9 million in 2003; $39.5 million in 2004; $38.3 million in 2005; $50.1 million in 2006; $43.1 million in 2007; $49.6 million in 2008; $53.5 million in 2009 and $56.8 million in the 2010, amounting to a $436.5millionfor the ten years.

However, the use of captives  for many years, was an exclusive province of multinational companies such  as shipping, banking, manufacturing companies etc but these days, even small companies set up captives firm and they have been extremely successful resulting in substantial cost savings and profits for their owners.

Besides, loads of businesses like the NNPC gets to a stage where they wish to accumulate profits outside their own jurisdiction and in an activity separate and apart from their normal course of business.

This may be for asset protection, tax efficiency or simple diversification reasons. The taxation of captives is well established in law with anti-avoidance provisions in many onshore jurisdictions. Nevertheless, correctly planned captives can provide a range of benefits for the owner.Some of the benefits of captive companies include cost reduction; risk management; cash flow benefit; reinsurance.


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