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Need for NAICOM to go beyond collecting fines

By Rosemary Onuoha

Shares of insurance companies quoted on the Nigerian Stock Exchange (NSE) are seldom the toast of many Nigerian investors all because of their penny nature.

These insurance companies were only able to attract the level of investment on their shares during the consolidation that took place in the sector between 2004 and 2005 because of the bullish nature of the capital market then.

As a result, investors that bought shares of insurance companies during the consolidation were hopeful of significant returns on their investment going forward. However, the story has not been all rosy.

At the peak of the capital market hype, Mr. Tony Aletor, managing director of Capital Express Insurance Company Limited warned that a lot of responsibility is on the part of insurance companies to justify financial results that will be coming out after consolidation.

According to him “There are more works to be done because insurance companies need to justify the confidence the public gave to them,” even as Aletor stressed that a huge capital base is not a guarantee that a company is solid rather its ability to meet shareholders needs and post good returns on investment will determine the strength of a company.

Former President of Chartered Institute of Stockbrokers (CIS), Mr. Oladipo Aina tasked insurance companies to be forthcoming in making public their financial results as it is a fact that insurance companies do not readily post their financial results for the public to peruse even as majority of them are listed on the stock exchange.

Aina noted that insurance companies are not predictable because the true position of most of them is not known; therefore accurate prediction about them cannot be made for investment decisions.

It will be recalled that in 2010, the Nigerian Stock Exchange suspended 12 insurance companies technically for failure to release their results in good time, in 2011, another 12 insurance companies have been suspended again.

The first half of 2011 financial year is gone and some insurance companies have sent their results to the National Insurance Commission (NAICOM) and are awaiting approval, some have not made any move to that affect.

The companies that are yet to make any move in regards to submission of results are Alliance & General Insurance Company Ltd; Alliance & General Life Assurance Plc; African Alliance Insurance Company Ltd; Anchor Insurance Company Ltd; Equity Assurance Plc; Great Nigeria Insurance Plc; Great Nigeria Life Insurance; Spring Life Assurance Plc; as well as Guinea Insurance Plc.

Others are Industrial & General Insurance Plc; Investment & Allied Assurance Company Ltd; Nigerian Agricultural Insurance Corporation; Standard Alliance Insurance Plc; Standard Alliance Life Assurance Company Ltd; The Universal Insurance Company Ltd; UNIC Insurance Plc; Union Assurance Company Ltd; NICON Insurance Plc; Nigerian Reinsurance Corporation.

The guideline After June of any year, any insurance operator that fails to submit annual financial returns stands the risk of losing its operating licence coupled with the statutory daily fine of N5,000.

According to the 2011 operational guidelines for insurance and reinsurance companies released by NAICOM, in addition to the N5,000 penalty for late filing of annual returns for each day of default, failure to file annual returns is now a ground for cancellation of operating license of insurance or reinsurance companies.

An insurer who refuses to submit to NAICOM on or before the end of June in any year is deemed to have failed to render quarterly returns and risk cancellation of its operating license.

Stakeholders’ views Mr. Yemi Soladoye, an industry consultant said that NAICOM should go as far as suspending companies from operating in the market just like the NSE does when companies fail to submit their results on time.

In his words “Sanctioning a company should not be all about paying fine. It should be about making the industry players know that NAICOM has the power to withdraw their licences as the regulator. It should not be about ‘we fine you,’ but by telling them that you are probably not fit to run this business.”

For Aina, most insurance companies are not predictable and this is hampering investment decisions as well as confidence regarding insurance stocks. “Insurance companies fail to realise that any company that is predictable will surely have a favourable response,” Aina stated.

According to him, insurance operators should be transparent in their dealings as they control a substantial volume of shareholders funds and they owe it to the investing public to make available their financial standings at all time.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.