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Depleting capital: Insurers seek access to N30bn statutory deposit

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Industry chieftains disagree on utilization

By Rosemary Onuoha

HAVING witnessed massive capital depletion while the economic downturn persists, a segment of the insurance industry, especially the fringe players are now lobbying the regulatory authorities to have access to their statutory deposit lodged in the Central Bank of Nigeria, CBN.

With industry statutory deposit in excess of N30 billion, marginal players are of the view that allowing them access to the fund will go a long way in boosting their investment income.

Statutory deposits represent amounts deposited with the CBN in accordance with section 9(1) and section 10(3) of the Insurance Act 2003. The cash amount held is considered to be restricted cash as the insurers do not have access to the balances in its day to day activities. According to the Insurance Act, 2003, in the case of existing companies, an equivalent of 10 per cent of the minimum paid-up share capital shall be deposited with the CBN. Any statutory deposit made shall attract interest at the minimum lending rate of the apex bank on every first day of each year.

Although top end operators argue that the statutory deposit is quite insignificant to their business operations when compared to their asset base, the marginal players are of the view that it will impact greatly on their investment income if granted access to it.

The Central Bank of Nigeria, CBN, headquaters, Abuja

While some players have submitted and gotten approval for their financial results for the 2016 financial year, a few others are struggling to do same, due to pressures on their balance sheet.

The Nigerian Stock Exchange had suspended some of them previous week.

Analysis of companies that have so far gotten approval for their 2016 accounts shows that of the 41 companies that forwarded their accounts, 32 were approved while that of nine underwriters were queried.

Meanwhile, 13 other firms including Goldlink Insurance, Nicon Insurance, Industrial & General Insurance, IGI; International Energy Insurance, IEI; African Alliance, NAIC Insurance, Unic Insurance, Great Nigeria Insurance, among others, are yet to forward their accounts.

Recall that for many corporate organisations and financial institutions in Nigeria, the year 2016 was a difficult one for business owners and operators alike with its attendant challenges.

Insurance industry operators pointed out that the sector was carrying the burden of adverse macroeconomic situation of the country, as fewer insurance underwritings were available while many others, including corporate clients, failed there premium obligations.

The situation, according to them, have now compelled them to lobby for a liquidity flow from the statutory deposits to enable them meet funding gaps.

 Statutory deposits/total assets

Vanguard analysis of the 2016 financial results of some insurance firms revealed that Cornerstone Insurance had a statutory deposit of N800 million with total assets of N21.4 billion. Custodian & Allied Group had N802 million as statutory deposit, while its total assets stood at N68.1 billion. FBN Insurance had statutory deposit of N500 million while total assets stood at N31.7 billion. Aiico Insurance had statutory deposit of N530 million with total assets at N77.5 billion.

Law Union and Rock Insurance had statutory deposit of N315 million while total assets stood at N8.6 billion. Nem Insurance had statutory deposit of N320 million while total assets was N14.5 billion.  Unity Kapital Insurance had statutory deposit of N355 million while total assets was N12.4 billion. Wapic insurance had statutory deposits of N617,632 million while total assets was N12.7 billion. Axa Mansard Insurance had statutory deposit of N500 million while total assets was N54.9 billion. Mutual Benefits had statutory deposit of N500 million while total assets was N51.5 billion.  Regency Alliance had statutory deposit of N376,532 million while total assets stood at N8.5 billion.

Meanwhile for insurers that are yet to turn in their full year 2016 audited results the statutory deposits being eyed are as at end 2015.

At the end of the 2015 financial year, Sovereign Trust Insurance had statutory deposit of N315 million while total assets was N9.3 billion. Royal exchange had statutory deposit of N555 million while total assets was N26.5 billion. Consolidated Hallmark had statutory deposit of N300 million while total assets stood at N7.0 billion. Standard Alliance had statutory deposit of N535 million while total assets stood at N11.8 billion. Staco Insurance had statutory deposit of N300 million while total assets was N10.9 billion, while Prestige Assurance had statutory deposit of N300 million and total assets of N10.5 billion. 

Operators’ reaction

However, against the quest for access to the deposits some insurance chieftains threw more light on the funds.

Managing Director of Wapic Insurance Plc, Mrs. Adeyinka Adekoya stated: “The statutory deposit is there because of the policy holders. It is a way of protecting the policy holders in-case an insurance company is not able to meet its liabilities. Hence, the deposit will be relied upon to pay the policy holders if an insurance company is distressed.

‘‘Although for the industry, the money seems to be held in captivity because it is not really making much returns for the industry and you know that we are highly dependent on investment income. So it would have been very good for us to have access to it so that we can invest it where it will yield maximum return on investment. But currently it is held in captivity.

‘‘However, I cannot really blame NAICOM because it is a move to protect policy holders, which is why the regulator is insisting on keeping part of it as deposit with the CBN.”

Managing Director of Cornerstone Insurance Plc, Mr. Ganiyu Musa, said that interest on the statutory deposit is not negotiable.  According to him, his company is focusing on deepening the business through investment income.

Group Managing Director of Standard Alliance Plc, Mr. Bode Akinboye, stated: “The statutory deposit has not been useful to us in any way. The return on it is very poor. If the CBN wants to keep such money they should allow us to get maximum return on it. For example, we could place it in any instrument we want. We could chose to place it in treasury bills or government bond where we can get better returns on it.

‘‘Just keeping such money in the CBN without any option of negotiating the returns on it is counter-productive to the investors and shareholders. The CBN has instruments that can give us better returns. So operators should be allowed to put it in any instrument of the Central Bank with the highest returns possible.”

However, Managing Director of FBN Life, Mr. Val Ojumah, in his comments stated: “The statutory deposit is just a security fund which is just 10 per cent of your capital. If operators are allowed to place it in investments of their choice, it will not serve the security purpose for which it was meant for.

‘‘Today many insurance companies are living out of their premium income. If you allow them to access the statutory deposit, they will kill the funds and use it for purposes which it is not meant for and the security purpose will be defeated.’’

Mr. Rotimi Okpaise, Founder/CEO of HR Nigeria Limited said, “I have no objections to insurers investing the statutory deposit into investment with higher returns, however, it has to follow due process. If we feel a change is needed within the law, then we have to seek for changes within the law.  But from the practice point of view I have no objections to it. If the law needs to be changed to accommodate that need, we have to go through that process to change that law.”

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