Five years after the introduction of the International Financial Reporting Standards (IFRS) in the industry, there are indications that underwriting firms are yet to overcome challenges of the accounting format as fewer companies have been able to submit statement of accounts to the regulator.
According to a release from the National Insurance Commission (NAICOM), for instance, out of 58 insurance companies operating in the country, only 16 insurance companies have got approval for the 2015 accounts before the 30th deadline.
Industry sources said that although a large number of the underwriting companies have submitted their statements of accounts to the commission for approval, some of them may not be approved.
Industry sources said that the inability of underwriting firms operating in the insurance industry to submit returns to the regulatory authorities may be linked to the low solvency gaps which are recurring features in their activities for more than five consecutive years.
He identified this as a serious challenge in the industry because many of the companies are weak. As a result, insurance operators are finding it increasingly difficult to meet regulatory returns to the commission and the Nigerian Stock Exchange (NSE). Besides, the 2012 compliant accounts of the IFRS set by government for the insurance industry may also have affected the ability of insurers and brokerage entities to submit yearly audited financial statement on time.
However, a top official of the commission who expressed worry on the inability of underwriting firms to submit their returns on time explained that from the audited financial statement of nearly a dozen insurance companies, solvency gaps are recurring features of their activities for as much as three consecutive years. According to him, appropriate regulation should have resulted in either suspension of their operating license and possibly withdrawal. The commission shall therefore, have zero tolerance for solvency gaps in the ensuring year in the interest of the insuring public and for the avoidance of exposure of NAICOM to regulatory risk.
Against the backdrop of massive investment losses following the capital market crash of 2009-2010, he said, the capital base of a number of underwriting companies has dropped remarkably, which has invariably affected their operations in the industry.
However, an industry chieftain said that the ability of commission to sanction some of the defaulting companies may be limited by the Insurance Act 2003 provision, adding that no matter the decision taken by the commission, it has to be approved by the Minister of State for finance. According to him, while other regulatory authorities in the financial services industry are empowered by law to deal with infractions in their financial sub-sector without recourse to the government agencies, the power of the commission to deal with similar cases by operators in the insurance industry is limited by the Insurance Act 2003.