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NAICOM tackles shareholders for abdicating responsibilities

By on July 5, 2014

The National Insurance Commission (NAICOM) has criticised shareholders of insurance companies in the country saying most of them have failed to effectively oversee the activities of the board and management of the respective companies.

The regulator said the abdication of this responsibility by shareholders to a great extent created rooms for board and management excesses, while their companies continued to post minimal profits or losses as well as erosion of investment and shareholders’ value.

The Commissioner for Insurance, Mr. Fola Daniel stated this at the interactive session between NAICOM and shareholders of quoted insurance companies in Lagos yesterday.

He recalled that the main objective of every investor in a company is to get return on his investment by way of dividends, capital appreciation, rise in the price of stock and bonus issue even as he pointed out four areas that shareholders should always review critically when directors of their companies lay the books of the company before them for approval.

These, according to him, include the risk pricing policy, investment policies, outstanding premium flowing from their credit policies and management expenses of their respective companies.

He also criticised shareholder for not effectively overseeing the activities of their boards and managements and warned “delegation of your responsibilities to the board and management of your companies does not translate to abdication.”

“Most of you do not ask questions as to how well your companies are being managed by your representatives.  Beyond the Annual General Meetings which you attend, how often do you seek information and get satisfactory feedback from your board and management. Do you engage in intelligent and constructive interrogation of the financial reports of your companies,” he queried.

“If you are not doing this as a shareholder, it means you have no interest in protecting your investment. It also means that your objectives for investing in these companies are at variance with the ones I have earlier mentioned,” the commissioner said.

The commission affirmed that insurance stocks were not doing well in the capital market since most companies do not pay dividend, do not give bonus to shareholders while their share prices had stagnated at 50 kobo per share.

“Not many of these listed insurance companies make substantial profit if at all they make any profit. The direct consequence of this is that these companies are not able to pay you dividends, no bonus issue and no capital appreciation. In fact the price of most insurance stocks in the Nigerian Stock Exchange (NSE) remains at nominal value of 50 kobo.

He also observed that in spite of the challenges facing the industry including by low insurance penetration occasioned by low disposable income, low insurance education as well as religious and cultural issues some companies still managed to return profit to investors.

This, according to him should be a cause for concern to shareholders of other companies that are not doing well.

Dwelling on the problem areas, the commissioner said pricing of risk is critical to insurance business saying how well an insurance company performs on a particular risk depends largely on how it is able to appropriately price the risk.

“So, if you are one of such companies that offer prices that are not commensurate with the risk you are taking, there is no way such a company will make profit. No company will make profit and pay dividends if it writes business for almost free, give rebates and gratis but pay huge claims on risk it collected little or no premium on.  This is what most of these insurance companies do,” Daniel said.

On investment, he said insurance companies were expected to generate income from investment of premium received and harped on the need for companies to invest in ventures that will guarantee returns on investment.

“Majority would rather invest as much as N5 billion in failing subsidiaries that will never yield dividends and thus, no return on investment. The situation is made worst because these subsidiaries which are not insurance related are outside the regulatory purview of the NAICOM.

NAICOM has tried to arrest this development by putting a limit of not more than 25 per cent investment of shareholders’ funds in non-insurance entities,” he stated.

 

[This Day]