Insurance, pension sectors battle for N145bn annuity business

As the battle for the soul of annuity business continues between insurers and pension operators rages in the wake of the recent circular by the National Pension Commission (PenCom) mandating life insurers to surrender the N145.05 billion annuity fund in their disposal to Pension Fund Custodians (PFCs), insurance sector  may also lose this business to pension industry, just like other businesses it has surrendered in the past, if care is not taken. Abdul Olalekan writes.

Insurance industry, in the past, has lost several businesses to poaching by some sectors, and the end might not be insight, as the annuity business which used to be under the jurisdiction of the insurers is about to be issued out to the pension industry.

The greatest undoing of the industry is that when those businesses, such as health Insurance, agric insurance, pension, among others, were snatched from underwriters, they don’t protest. They willingly accepted their fate, without much questioning why it should be so. Although initially, there were minor protests, but those protests never went beyond preliminary stage as operators decided to let the sleeping dog lies.

In similar circumstance, in which history is trying to repeat itself, precisely on November, 03, 2016, PenCom released a circular, mandating all life insurance firms to return the N145.05 billion Annuity Fund in their custody to the Pension Funds Custodians (PFCs).

The PenCom circular sent to pension fund administrators and custodians and signed by its Head, Surveillance Department, Muhammad Umar, said in line with the Pension Reforms Act (PRA) 2014, it resolved that the custody of retiree life annuity shall henceforth, be domiciled with PFCs as provided for in Section 56 of the pension act.

PenCom mandated all life insurance companies currently providing life annuity for retirees under the Contributory Pension Scheme (CPS) to open an operational account jointly with a PFC of their choice and advice the commission.

It maintained that all life insurance companies currently providing retiree life annuity under the CPS should transfer the corresponding assets in their possession/custody to the PFC of their choice.

The commission also noted that the approval of new request for annuity should be put on hold with immediate effect, until life insurance companies meet the custody and transfer conditions.

PenCom said life insurance companies are required to open an account with the custodian of their choice and also execute custodial service agreement that shall state the terms and conditions of the contract between the parties.

It was a circular that unsettled insurance industry, as operators were reluctant to release the fund to pension fund custodians especially at a time the industry is grappling with several challenges.

Insider source alleged that some life insurance operators were allowing retirees to use their annuity fund as collateral for loans, which according to them, negates the pension law.

This unethical practice, according to some experts, was the major reason PenCom took its decision.

Investigation shows that the insurance industry regulator and operators are unhappy with the pension industry regulator, as this directive is expected to starve the affected life firms of fund.

As it stands, there is an embargo placed on new annuity businesses, until insurers transfer the annuity fund in their possession to pension custodians.

Already, there is a serious de-marketing of Annuity Option by some overzealous Pension Fund Administrators (PFAs), with some life insurers are equally doing same on Programmed Withdrawal option.

To this end, some of the affected life insurers, who are feeling disgruntled by this issue felt this circular only tilt in favour of the PFAs.

The concerned insurers, Business 247 News Online learnt, had alerted the National Insurance Commission (NAICOM), even as the Nigerian Insurers Association(NIA) is closely discussing and working with the regulatory authority to resolve this issue amicably.

Currently, NAICOM is planning a meeting with PenCom to iron out the issue, even as underwriters through NIA, has taken its battle with the PenCom on transfer of annuity assets to the National Assembly; Secretary of the Federal Government; Minister of Finance and other government agencies.

Reacting to the development, Director-General, NIA, Mr. Sunday Thomas, who spoke at the 2nd Business Journal Insurance Summit 2016, in Lagos, noted that the body has also written PenCom, NAICOM and the Head of Service on the need to resolve the feud.

He stressed that in line with the law, PenCom lacks legal grounds to call for transfer of annuity assets which is different from pension contributions, stressing that he is optimistic, the circular would be withdrawn by the pension regulator.

A Pension Expert, Mr. Emeka Okeagu believes there are problems with regulation of Retiree Life Annuity (RLA).

The law, according to him, did not empower any of the two feuding regulatory bodies to do this; it rather placed a joint responsibility on them, asking them to issue guidelines for the business jointly.  The law, he said, was silent on how to resolve disagreements between the two agencies of government when there are disagreements.

“The second problem lies in the fact that Retiree Life Annuity is an insurance product licensed and regulated by NAICOM in line with insurance laws and practice.  But custody of all annuity assets is placed squarely on the shoulders of Pension Fund Custodians licensed and regulated by PenCom as provided by Section 56 of the PRA 2014.,” he pointed out.

He noted that another controversy relates to whether Retiree Life Annuity is an insurance or pension product, saying, it it is a pension product, then custody of the assets should rightly be with PFCs as demanded by PenCom, but that if it is an insurance product, Life Insurers could hold and manage such assets in line with relevant insurance laws and regulations and propagated by NAICOM.

The law did not make any provision on this as such the two regulators(NAICOM and PenCom) feud over control of RLA assets, he pointed out.

He equally envisaged that serious confusion could arise over the investment of RLA assets and payout of its benefits should custody revert to PFCs.

To him, “Before now, RLA assets used to be managed in line with guidelines issued by NAICOM whereas PFCs honour instructions on investment of fund and payment of benefits from PFAs only if they are in tune with guidelines issued by PenCom.  Where there are disagreements between guidelines issued by PenCom and NAICOM, which guidelines will Life insurers follow bearing in mind that they are not regulated by PenCom and which guidelines will PFCs follow since they are not regulated by NAICOM. The law was not specific on this.”

Meanwhile, investigation by Business 247 News Online shows that some PFAs might have cashed in on this development to de-market the life insurers by sending the PenCom circular to their clients.

ARM Pensions, PAL Pensions, among others, are already culprits in this regard, in a move some stakeholders criticised.

For instance, according to a e-mail message sent by ARM Pensions to its clients: ” The custody of retiree life annuity be domiciled with Pension Fund Custodian (PFC) ; All Life Insurance companies currently providing retiree life annuity for retires are to open operational accounts jointly with a PFC and transfer the corresponding pension assets in their custody to the PFC of their choice within three months. The approval of new annuity requests is hereby put on hold with immediate effect until Life Insurance Companies meet the custody and transfer conditions.”

As it stands, none of the two industries is ready to bury the hatchet, with each sector fighting its own course. Hopefully, only time will tell who of the two sectors will win the soul of annuity business. But as it is, onlookers are watching with keen interest to see how the event is going to play out.