By Favour Nnabugwu

THE National Insurance Commission (NAICOM) has warned insurance companies in the country against engaging in facultative reinsurance without first exhausting local capacity.
Facultative reinsurance is negotiated separately for each insurance contract that is to be reinsured.

The flexibility of facultative reinsurance allows many ceding insurers to reinsure hazardous risks not covered by ongoing treaty arrangements, thereby reducing the insurer’s liability in certain high-risk areas.

The Commission in a letter dated December 22, 2016, titled, Utilization of in-Country capacities of the Nigeria Insurers, reinsurers and pools prior to foreign facultative reinsurance, signed by the Director, Policy & Authorisation, Mr Pius Agboola, admonished local underwriters to ensure they fully exhaust all the capacities with the the industry and country before ceding them to foreign countries.

According to the warning sent to all the insurance companies, the Commission clearly stated that it would not spare any operator caught not to have fully utilized local capacities before taking the risks abroad.

“The attention of the Commission has been drawn to recent practices in which insurance practitioners fail, neglect or refuse to consider and fully utilize relevant in-country capacities of insurance/reinsurance institutions such as pools, reinsurers and other approved local/recognized insurance capacities, prior to applying for approval to cede certain proportion of some risks offshore.”

“In some situations where the pools, insurers or reinsurers are offered participation, the institutions are either offered minimal proportion below their capacity or informally restricted and/or compelled to accept lower than their respective capacities for the purpose of justifying cession of the risks offshore.”

“This unethical practice which undermines our collective resolve to ensure full utilization of available in-country capacity in line with domestication and the local content policy contravenes extant insurance laws and regulations and shall therefore not be tolerated henceforth.”

Aside the issue of local capacity, the Commission insurance companies do deliberately sideline some underwriters under the excuse of outstanding claims owed to them.

“Additionally, the Commission has observed that some Insurance Institutions have inappropriately arrogated to themselves the authority to unilaierally exclude some insurers over alleged outstanding claims.”

“It has therefore become imperative to remind all insurance institutions that they are required to report any alleged non-settlement of claims to the statutory grievance/complaint redress mechanisms (the Commission’s Complaint Bureau) for appropriate action prior to determination of their participation (Refer to our Circular NAICOM/CB/MDM/001 of 13th January 2015).”
NAICOM however read the riot act to insurers, “All insurance institutions are required to ensure that Nigerian Insurers, Reinsurers and Pools (in the Commission’s records) must be offered and allowed to willingly decide the proportion of the risk they wish to accept (subject to their respective capacities), before any application for approval for offshore placement of the excess.”