NAICOM/CFI/NRP/CIR/01/2017 January 23, 2017
Circular to All Chief Executive Officers
and Boards of Insurance Institutions
STATEMENT OF NAICOM’S REGULATORY PRIORITIES FOR THE YEAR 2017
This document sets out the regulatory and supervisory priorities of the Commission for the year 2017 and seeks to acquaint Insurance Institutions with the issues which will receive special regulatory attention in the year. It will enable Insurance Institutions prepare for the changes that may be required; however, its issuance is without prejudice to right of the Commission to prioritize any issue it considers appropriate during the course of the year.
The current economic recession, other dynamic business drivers (including improvements in best practices and standards) and peculiar conditions of the Nigerian Insurance Industry have created the need for high level of prudence, innovation, proactivity, and agility in both operations and regulations of the Industry. Whilst Insurance Institutions need to take steps to minimize, if not avoid, the negative impact of externalities and ride on opportunities inherent in them, the Regulator needs to ensure that customer protection and market stability receive priority attention.
It is in the light of the above, that the Commission hereby draws attention to the following issues and requirements that will engage its attention in 2017 so that Insurers are prepared and, where necessary, also make contributions that will facilitate better outcomes for the industry.
The Commission will re-launch the Market Development and Restructuring Initiative (MDRI) with special and intensified implementation efforts on the following areas;
• Enforcement of Compulsory Insurance
• Diversification of Distribution Channels
• Increase in Access Points for Insurance Services
• Micro Insurance
• Improvement in Data Collection
• Promotion of Financial Literacy
The Commission hereby invites suggestions on the above items as well as the relevant elements of the National Financial Inclusion Strategy which is due for review in 2017. Such suggestions should reach the Commission not later than February 17, 2017.
Since the last recapitalization exercise in 2007, the business environments and the risk profile of all Insurance Institutions have changed. In order to ensure protection of policyholders and beneficiaries of insurance contracts against unexpected losses of Insurance Companies, the Commission will undertake a verification of the Capital resources of all Insurance Companies in the first quarter of 2017. The cost of this exercise will be borne by the Companies (the modalities shall be communicated in due course).
It will entail a verification of the Assets and Liabilities of all insurance Companies. In preparation for this, Boards are advised to ensure fairness in valuation of assets and liabilities of their Companies when presenting the Financial Statements for the year ending 31 December, 2016. All Professionals that participate in the financial reporting supply chain are expected to ensure their duties in the valuation of assets and liabilities and issuance of opinion on financial reports are discharged creditably in accordance with relevant laws and professional standards.
Management Expenses of Insurance Companies
The level of expenses of some Insurance Institutions is becoming a cause for concern. In this regard, the Commission will pay more detailed attention to reasonableness of management expenses to ensure that each Company’s level of expense is appropriate for its business model and does not adversely affect its profitability, liquidity and capital adequacy.
The Commission will expect each Board to take definite steps to ensure reasonableness of its Company’s expenses by ensuring that they are incurred wholly and necessarily for the purpose of the business. Evidence of action in this regard should feature in the minutes of board meetings.
A number of Companies submitted their statutory Returns for the year 2016 late. At the time of issuance of this statements some are yet to submit the required Returns and without explanation. This deprives the Commission, Policyholders, Insurance Intermediaries, Analysts and other Stakeholders of the relevant information about the performance and financial condition of the Companies, as well as the level of their compliance with relevant provisions of the law.
The Commission is poised to implement relevant measures to discourage Companies from filing late Returns and sanction errant ones appropriately. Amongst others, this will include a detailed review of their accounting and financial reporting systems, restriction of certain activities until relevant Returns are filed, action against officials accountable for financial reporting, as well as publicizing the compliance status of Insurance Institutions on our website for public guidance.
The Boards of Companies are expected to take interest in the timely filing of Returns which, incidentally, contain information they need to effectively perform their oversight function. The non-rendition of Returns is therefore an indication of the failure of the Board.
In order to facilitate the timely rendition of Returns, the Commission will carry out a review of the current Returns requirements and streamline them for more efficiency in preparation and submission. The transition to electronic submission will commence this year. All Companies are required to send in their suggestions on areas for improvement not later than February 10, 2017.
Risk Based Supervision
The final road map for the Industry’s transition to Risk Based Supervision (incorporating all the suggestions made by the Nigerian Insurers Association), will be issued by the end of January 2017. As indicated in the draft exposed last year, the Commission already has components of a risk based solvency regime in place which will only be improved upon in the light of changes made in regulatory standards after they had been introduced and the operating context of the Nigerian Insurance Industry.
While it is acknowledged that some time will be required to install a full-fledged risk based solvency regime for the industry, the reality does not preclude the operators from paying attention to the risk to which they are exposed to, as a result of their Underwriting, Operational choices, and relevant drivers in the business environment. The Commission has noted that some Boards of Directors do not give adequate attention to the risk exposure of their business and the adequacy of their Capital. It is assumed that such Companies wait until the Commission informs them of the areas of concern and deficiencies in their solvency margin. The statement of compliance with Risk Management Guidelines appears to be issued without regard to the realities of the Companies concerned.
In this regard, Boards are advised not to see risks and solvency management as just an issue for compliance but as a practice worth imbibing by prudent and effective Insurance Institutions. On the Commission’s part, appropriate measures and tools are to be deployed to ensure Companies that pose greater risk to the attainment of its regulatory objective receive more proactive and intensive supervision. Boards will be expected to consider the Risk Register and solvency condition of their Companies during their quarterly Board meetings. With effect from 2017, the Commission expects each Company to send in report on Board’s assessment of their risk and solvency quarterly, as well as annual report on Own Risk and Solvency Assessment (ORSA). Furthermore, all Companies are required to have their appointed Actuaries issue a Financial Condition Report (FCR) of their Companies as at 31 December, 2016, not later than 31 March, 2017.
There is no doubt that the application of Information and Communication Technology (ICT) is a critical success factor in the running of any business today and the Insurance Industry continues to explore the benefits it offers. Information technology applications are catalyst to the development of any industry but not without its challenges, the most critical of which is security. The Commission is to establish the framework for Information technology supervision of insurance Institutions and promote arrangements for efficient and more cost effective applications in the Insurance Industry.
Competence of Directors Senior Management and Persons in Control Functions
The Commission is concerned about the performance of some Boards and Managements as reflected in their work not only from compliance perspective but also in terms of strategic and operational choices they make. Our strategic approach to these challenges is to develop a mandatory competence profile for Directors and persons in Senior Management and Key functions in liaison with relevant organs of the industry whilst also considering a number of mandatory learning requirements/trainings for Directors, which shall commence in February, 2017
The importance of Corporate Governance in the management of Insurance Institutions cannot be over-emphasized. The Commission expects all Directors of Insurance Institutions to rise up to the challenge of not only ensuring that their Companies comply with relevant laws but also that their activities take into account the interest of all stakeholders especially Policyholders and providers of Capital.
The Commission will pay more attention to the behavioural aspects of Corporate Governance and extract accountability from relevant parties, especially Directors and members of Management. Consequently, all Insurance Institutions are required to forward, to the Commission, planned schedule for their Board meetings for the year 2017 not later than February 10, 2017.
Service Delivery by the Commission
In the course of the year 2016, the Commission collated data on the service expectations of Operators in the Insurance Industry with a view to incorporating same in a service charter. This has been reviewed and it is being finalized into a draft document to be circulated for further inputs. It is important to assure all relevant stakeholders that the Commission is committed to ensuring timeliness in the rendition of its services.
The Commission is going to leverage on information technology to improve its effectiveness and reduce the regulatory burden of manual operations on Insurance Institutions. All complaints about the service of the Commission should be forward to the SERVICOM Unit of the Commission for prompt attention.
There is no doubt that the Insurance Industry is going to continue to experience its share of the current economic challenges. The Commission recognizes the need to be innovative and proportionate in its supervision of Insurance Institutions and would be so guided appropriately. The Commission, however, expects that the avenue provided by Insurers Committee will be fully exploited to progressively improve the Insurance Industry’s contribution to the real economy in the manner and scale expected by stakeholders.
National Insurance Commission
January 23, 2017