In this interview with NIKE POPOOLA, the Interim Managing Director/Chief Executive Officer, International Energy Insurance Plc, Peter Irene, speaks on the need for government to give insurance sector more support.
What are the major challenges facing insurance industry in Nigeria?
The number one challenge is poor penetration. Insurance is predicated on a pool of large numbers and if you do not have the large numbers, you cannot build capacity. Nigeria’s insurance market lacks capacity because many people are not insuring, and I believe the quick growth area lies with government enforcement of compulsory insurances.
The lack of capacity accounts for the shipment of businesses abroad despite local content laws. Building local capacity entails having more businesses and individuals insuring.
Compare insurance to pension; they have built a war chest of over N7tn. They have been able to do it because of government enforcement. Insurance is a form of savings too, but they have not done well because of lack of government support. Today, it contributes less than one per cent to the Gross Domestic Product.
When you look at it that insurance has been in this country since the early 20th century, if we have been saving, this country would have been rich. However, there appears to be more seriousness now with the current government trying to enforce the compulsory insurances.
What led to NAICOM’s take of IEI ,which necessitated it to install an interim management?
When NAICOM appointed the interim board, there was a clear agenda and mandate of what we should do. They were clearly stated.
One of the reasons the erstwhile board was removed was because many of squabbles and internal wrangling among the board members. When there was no clear corporate governance in place, everyone did what they liked. So, one of our mandates was to stabilise the place.
The company was adrift and was recording losses until the shareholder funds became negative. There was a complete depletion of shareholder funds when the interim board came in and one of the mandates was to examine the situation and identify those responsible for the situation. We were also asked to conduct a forensic audit to determine the true position of the company.
What did you discover from the forensic audit?
We have done a forensic audit, which was conducted by KPMG, and we were able to identify the factors and persons responsible for the depletion of shareholders’ funds. One of those factors that stood out was bad investments. When corporate governance is absent, anything can happen.
Some investments that were in the books of the company could not be traced anywhere. So when we came on board, we stabilised and restructured the company and put round pegs in round holes as well as brought in some people to strengthen the underwriting and finance units.
There were some businesses written that were not supposed to come into the company. For instance, bonds were indiscriminately accepted by the company and these resulted in huge losses that the company is still recovering from.
In the technical area, we have largely stabilised the underwriting front and for the first time in several years, we reported underwriting profit in our 2016 results. Though we are not yet out of the woods, we can already see the goal of our coming into the company being realised. We have done very well in that regard.
How is the financial status?
By the time we reached here, the accounts of the company were three years in arrears; that was 2013, 2014 and 2015. We had to get the accounts ready and approved by the National Insurance Commission and other relevant regulators at the annual general meeting held earlier last year. This, for us, is a major milestone for this company.
We are still negotiating the Daewoo debt and until that is settled, we still have the responsibility to get it done. In order to ensure that the true position of the company is revealed, we engaged Ernst & Young. The existing auditors were doing a good job but the interim board needed the services of Ernst & Young to get us credible accounts that we can show to anyone. So, what we have now is now account that has integrity.
We have also restructured our personnel to achieve efficiency in our core mandate areas. We also reorganised our subsidiaries and one of them, IEI Anchor, has turned from losses to profits. Add this to the integrity of the interim board chairman and the entire team and you will see that we are aiming to hand over a beautiful company to NAICOM as soon as we are done.
Some people point to the fact that our losses are increasing, but the reason is traceable to foreign exchange. We put our dollar-denominated businesses in local currency treaties and so when claims occur and you have to pay, you pay a higher value based on current value of the naira against the dollar.
What we met before the devaluation is that all treaties, all dollars were translated at N197 per dollar. So we had to beef up and translate to official rate of N300, plus. And due to fluctuations in the forex market, it created lots of losses. All the accruals demanded by International Financial Reporting Standards were all accounted for in the books. Today, the IEI has an account which reflects the true position of affairs.
How is the revenue aspect like?
On the revenue side, we inherited a lot of liabilities; unpaid claims and high volume of commissions from broker generated businesses that we have not fully settled. That is the reason our revenue went down.
In addition, the income recognition is different from what we met. Before now, income recognition, sometimes, accounts for the entire premium in co-insurers and not just the company’s proportion. We have reversed that policy and now book only what is due to the company.
Apart from brokers’ apathy, the current system of income recognition has reduced our revenue. But it is also good that we put in place this measure so that we don’t write all businesses and end up in losses. Our aviation wasn’t looking good but we have strengthened it with more robust policies; taking into account the interest of the consumers.
What is the status of your relationship with Heritage Bank?
We still have a strong relationship with Heritage but there were issues bordering on the actual shareholding position of IEI in the company and bank reconciliation of our accounts at their head office.
When is the timeline for pull out of the interim board?
Compared to other insurance companies under technical management by NAICOM, ours has done very well within same timeframe. We need to do the job and leave but the issues that brought the interim board have not been fully resolved. The interim board is not willing to stay here longer than necessary.
What are the prospects going forward?
One of the tasks the interim board will undertake is to recapitalise the company and the moment the new investor comes in, the interim board leaves. The moment we resolve the Daewoo loan and get a new investor, our job is completely done and we will leave.
We have set our timelines up to December and looking forward to a discussion with NAICOM to get its approval. The company has a lot of prospects. The PFA as a subsidiary is doing excellently well and I believe many investors will see the company as a good buy.
I will ask IEI business partners to come back and see a company that is rising again. A company that is financially transparent and showing a true position of affairs as it is. We have much more integrity and our promises are all met even if gradually.
Our outstanding commitments and obligations to brokers and other business partners will be fulfilled. Whoever we owe, we will pay. At some point here, we paid $1.3m. We have been paying a lot of claims since we came in. It is a gradual return to health for the company.
What took several years to destroy will not just be rebuilt in just a moment. It will take time to clean up. We need our partners to be patient with us and to support us. At present, we have paid all our claims up to December 31, 2017 as we promised.
What are the growth opportunities?
I believe the future of insurance lies in the retail side of the business. I strongly contend that IEI will see opportunity in life in the future and invest in it. I think when new investors come in, they may really veer into life business as well and not just stay on general business alone because that is the future of insurance.
Though energy specialists, I think the future of IEI lies in life investment. The company will still retain its leadership in energy manpower while exploring opportunities in retail lines.