The National Pension Commission(PenCom) and the National Insurance Commission(NAICOM), are working on how to thinker with the guidelines regulating N323 billion annuity Business in the country, National Economy learned.
The ongoing plan by both regulators to review annuity Business regulations was to possibly address some of the challenges of annuity Business as well as empowers insurance agents to sell benefit annuity products.
Recently, no fewer than five life insurance companies have cut down on their annuity business portfolio as volatility, inflationary pressure, as well as low returns on investment, continue to hit the bottom line of insurers.
While three of the concerned Firms have suspended Annuity Business, for now, two of them have reduced their Annuity Business volume as Profit from this Business portfolio dips.
The underwriters reduced their risk appetite for annuity business, as they deemed it not profitable at this moment. More insurers are expected to either suspend or slash their annuity business volume in the next couple of months.
Worried that the shrinking Profit, if not addressed now, could negatively affect their books and ability to give good returns to shareholders, AIICO Insurance Plc, African Alliance Insurance Plc, LASACO Assurance Plc, Niger Insurance Plc, Royal Exchange Plc, have decided to limit Annuity businesses they write, at least for now, until things change for the better.
Others, insider sources revealed, may toll this path soon, unless NAICOM and PenCom, who are both joint regulators of Annuity business, come up with a tangible solution to address this trend.
Some of the affected insurers stressed that, prior to the recent development, the annuity business was more profitable, but recently, it is beginning to be bad business for them, especially, those with too much exposure to the annuity market, highlighting pricing as a major challenge.
This, among others, however, necessitated the ongoing review.
Speaking on this development, the Deputy Director/Head, Research, Statistics & Strategy Directorate, NAICOM, Mr. Gbolahan Adewale Suleiman, disclosed that the two regulators are reviewing the existing regulation on Annuity Business, which, he said, is gradually attracting the needed attention from retirees.
He said the guideline became necessary due to the current trends around annuity business, noting that, when the guideline becomes operational, only insurance agents will be allowed to sell annuity plans on behalf of underwriters.
He stressed that any insurance broker that is interested in the sale of annuity should be ready to earn agency commission.
According to him, the step is taken to protect annuity funds against huge commissions earned by intermediaries.
Earlier, the Acting Commissioner for Insurance, Sunday Thomas, has expressed optimism that a substantial part of the N10 trillion pension assets will find its way into the insurance portfolio.
NAICOM, he said, is working assiduously to put in place measures to protect the expected funds.
According to him, this informed the move to raise actuarial analysts who will help measure and manage insurance associated risks.
“Annuity requires day-to-day measurement and management of its activities. As I speak with you right now, annuity accounts for about 40 percent of our portfolio. That actually requires our attention.
“We have also read that contributions into the pension portfolio are in the neighborhood of N10 trillion. So, a substantial part of it is supposed to empty itself in the insurance portfolio. How do you manage this if you do not have those who have what it takes to measure and manage the associated risks?” he queried.
The Retiree Life Annuity (RLA) is an insurance product and one of the available retirement benefit options for retirees. The product can be purchased from a Life Insurance Company licensed by the NAICOM and authorised to sell RLA under the regulation of retiree life annuity.
NAICOM had earlier said, the insurance sector life annuity fund portfolio stood at about N323 billion at the end of the second quarter of 2019.
A life annuity is a stream of periodic payments that commences at a specified date, which is either the normal retirement age or at 50 in the case of early retirement.
This payment could either be monthly or quarterly depending on the retiree’s preference.
The benefits include; the continuous flow of regular income for the retiree, insulation from the risk associated with the investment of lump-sum benefits, structured management of resources and the transference of the risk of diminution in assets and possible failure of investments of retirees to insurance companies which are better equipped to manage such risks.
