New annuity arrangement blessing to insurers – Hussain

From left: L-R: Dr Tonia Smart, MD/CEO, YorkCity Limited and Chairperson of the of the awards; Ms Nkechi Naeche ,CEO, BusinessToday Communication; Former DG Laspec Mr Rotimi Adekunle Hussani and Mr Gabriel Esezobor, Business development Manager, Businesstoday communications at the event.

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Chuks Udo Okonta

The mandate given to Life Insurers to transfer over N167.84 billion annuity fund belonging to about 34,312 annuitants, is a blessing to the insurance industry, the former Director-General, Lagos State Pension Commission (LASPEC) Rotimi Adekunle Hussain, has said.

He disclosed this today at the 4th BusinessToday Insurance & Pension Awards, in Lagos. According to him, the current arrangement would correct the public perception that insurers have full autonomy over annuity and build public confidence, hence, attracting more people into buying annuity and growing the fund.

He noted that the domicile of annuity fund with Pension Fund Custodians (PFCs) would also stemmed the demarketing of annuity as it would provide a level playing field for insurers and Pension Fund Administrators (PFAs), stressing that the arrangement would lead to safety of pension funds.

He maintained that the confidence to be achieved through the new arrangement, will help attract the private sector to annuity business, hence, enhancing the insurance market share.

He called on insurers to leverage the opportunities to be created by the new arrangement and be aggressive, innovative in the pursuit of their business.

Hussain, also called on insurers to engage more with the National Pension Commission (PenCom) on development of rules and management of pension funds.

Group Managing Director, Royal Exchange Plc, Auwalu Muktari, said under the new guidelines recently issued by PenCom and National Insurance Commission (NAICOM), the annuity funds from all insurance companies who issue annuity policies will be transferred to Pension Fund Custodians (PFCs) of their choice, stressing that this amounts to over 34,312 annuitants having their funds, N167.84 billion, leaving the insurance industry and moving to the designated PFCs.

“Going forward, all life insurance companies doing Annuity are directed to open operational accounts with the PFCs and all new annuities will be processed through the PFCS and not insurance companies. This effectively means that the insurance industry will be losing over N150 billion to the PFCs, as they will be the custodians of the annuity funds.

“The law establishing the Contributory Pension Scheme gives Retirees the option to choose between buying an Annuity with part of their pension savings from a life insurance company after retirement or take a programmed withdrawal of the pension savings with a Pension Fund Administrator (PFA). Has this aspect of the law been changed?

“Investment Income for Insurance Companies: With the movement of over N150billion from the coffers of insurance companies to PFCs, insurance companies will definitely witness a significant drop in their profit margins, as there will be less investment income. How do they compensate for this drop?” He queried.

He also remarked that the new guideline, issued jointly by NAICOM and PenCom makes no mention of insurance agents and brokers, and then asked the question, who will pay the insurance broker or agent their commissions and from which premium, since the funds have been transferred to the PFCs? Let us all remember that brokers and agents play key roles in the sale and distribution of insurance products in Nigeria, he said.

According to him, another key issue is asset liability balancing in the event of loss in investment, who will bear this cost? If an annuity asset loses value, the insurance company will cover this gap, but how will all this work out now with the new arrangements in place?

On unhealthy competition between the PFAs and Life Insurance Companies, he said a lot of retirees are opting for annuity policies over programmed withdrawal, as they have more access to their funds than through the programmed withdrawal and asked if the migration to annuity informed the new arrangement.

“One critical success factor in the interplay between PenCom and NAICOM is the umbrella body of insurance companies in Nigeria, the Nigeria Insurers Association (NIA). It is important that the insurance industry speaks with one voice and presents a unified front in the campaign to ensure the Annuity funds remains with the life companies.

“Losing over N150billion to the PFCs will result in a deep cut in the pockets of life insurance companies in Nigeria and will be the second time the insurance industry is losing a part of its business, after the transfer of Workmen’s Compensation to the National Social Insurance Trust Fund (NSITF),” he said.

He called on NAICOM to be alive to its responsibility of safeguarding the insurance industry by ensuring that policies will not be initiated that are detrimental to the growth of the industry, adding that In doing this all stakeholders will all witness an insurance industry that will be a net contributor to the nations’ economy.

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