Insurance

High management expenses drain assets of troubled insurance firms

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Chairman NIA, Eddie Efekoha

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Chuks Udo Okonta

High management expenses incurred by some insurance firms seemed to be impacting their operations negatively, as the industry spent over N294.90 billion on management expenses in five years.

Management expenses, include, underwriting expenses, salaries, rents and others excluding commission to agents.

A report obtained from the Nigerian Insurers Association (NIA), revealed that non life operators incurred N220.91 billion and life operators N73.99 billion between 2010 and 2014.

According to the NIA, Non Life insurance companies spent N52.12 billion on management expenses in 2014, representing 0.28 per cent of the N184.97 billion gross premium income made in the year. Whilst Life operators spent N23.60 billion, 0.22 per cent of N108.58 billion gross premium income.

The report showed that on Non Life operations, Investment and Allied Insurance Plc, had the highest expenses, put at N169.50 million, 38.53 per cent of N4.40 million gross premium income it recorded. The firm was followed by Fin Insurance Plc, N854.16 million, 1.07 per cent of N795.73 million underwritten and NICON Insurance Plc, N1.58 billion, out of N9.45 billion GPI (0.17 per cent)
For Life business, NICON Insurance Plc, had the highest, expending N453.80 million, out of N92.04 million GPI, (4.93 per cent), SpringLife Assurance Plc, N105.28 million out of N32 million GPI (3.29 per cent) and Unic Insurance Plc, N742.81 million, out of N259.31 million GPI, (2.86 per cent).

Nigerian Agricultural Insurance Corporation was the most prudent in the general business category with N74.43 million expenses out of N1.24 billion GPI (0.06 per cent) followed by Niger Insurance Plc, N276.47 million, out of N2.41 billion GPI, (0.11 per cent). Alliance & General Life Assurance Plc, had the lowest under life business, with N26.22 million spent out of N1.36 billion (0.03 per cent).

Other firms with high expenses include, Cornerstone Insurance spent N1.72 billion out of N3.75 billion, Equity Assurance N1.19 billion out of N3.42 billion, International Energy Insurance N2.88 billion out of N4.83 billion, LASACO Assurance N1.05 billion out of N3.77 billion, Universal Insurance Plc, N549.05 million out of N722.22 million and UnityKapital Assurance Plc, N1.71 billion out of N3.03 billion.

Shareholders have alleged that some insurers deliberately stripping them of returns on investment by concealing their benefits in over blotted management expenses.
Shareholders believed most firms short-changed them by handing their benefits under management expenses.
A top executive of a renowned shareholders group, who expressed misgivings over the issues said while shareholders are suffering due to lack of dividends and capital appreciation, insurance companies, yearly record huge management expenses.

He said shareholders have observed that most companies in a bid to deny shareholders of dividend conceal their profits in management expenses, adding that an urgent measure must be taken to check this menace perpetuated by these operators.

“Imagine, shareholders bought WAPIC Insurance shares at N13. Today, the price is just at almost the issuing rate. This is not good for a sector that wants to make progress,” he said.

He noted that prices of other sectors are gradually rebounding after the 2008 capital market financial crisis, but the price of insurance stocks has remained stunted, owing to investors’ apathy resulting from lack of returns on investment.

For the Coordinator Independent Shareholders Association of Nigeria (ISAN) Sir Sunny Nwosu, the huge expenses are duly incurred in a bid to get good hands.

According to him, any company that wishes to attract best hands and retain them, they should be ready to pay.

He noted that the acclaimed huge management expenses, is often incurred in a bid to engage capable personnel to drive affairs of organisations , stressing that good services are not cheap anywhere in the world and that organisations that want to be at the top should be ready to pay for the services of professionals.

“If you want the best you have to pay for it, if any regulator is coming to take up an executive job, in some of these companies, you need to know how much such person would earn and the salary becomes personal to that person.

“The regulator can not just be in their cosy offices and say management expenses is high. Go and ask for the regulators audited accounts, you would see certain things that you would not believe,” he said.

National Insurance Commission (NAICOM) has continued to express worry over the amount spent by underwriters on their management. The regulator claimed what ought to have been return on investment are used as operating expenses by some insurance companies.

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