By AMECHI OGBONNA and MADUKA NWEKE
MOHAMMED Kari, Nigeria’s Commissioner for Insurance, is a Chartered Insurance practitioner with over 35 years local and international insurance and management experience.
He started his career with Royal Exchange Assurance Nigeria, Kano Branch, in 1979 after completing a Diploma in Insurance programme. In 1984, he joined Yankari Insurance Company where he worked until 1989, when he was appointed an Executive Director in Niger Insurance Plc. In January 1992, he rose to the position of Managing Director/Chief Executive of Nigeria Reinsurance Corporation, a position he held until March 1993 when he became the Chief Executive at NICON Insurance Corporation, a leading company in the financial sector and the insurance industry. He served in that capacity until January 2000 when he resigned his appointment to set up Arit Solutions Limited. Kari returned to insurance management in 2007 as the Managing Director/Chief Executive of Unity Kapital Assurance Plc, after consulting in the acquisition and merger of the three companies that formed Unity Kapital Assurance Plc.
In July 2015, Kari appointed the Commissioner for Insurance and Chief Executive of National Insurance Commission (NAICON) by President Muhammadu Buhari. He spoke to Daily Sun at a recent retreat at Olusegun Obasanjo Presidential Library in Abeokuta, Ogun State.
What do you have to offer insurance industry?
This is my third coming. I retired twice but the first ended in NICON. My career started way back in the Royal Exchange. I did a company called Encreation and from there, I came to Niger Insurance, Nigeria-Re and then NAICOM. I retired there. Then I came back and merged three companies, Intercontinental, Capital Insurance and Global Commerce into Unity Capital after which I retired again. Now I am out of retirement again.
All the provisions of these things have new ideas because there is always wisdom in what works. So it doesn’t have to be new but if it works, it needs to be implemented and everything this industry needs is just for the operators to appreciate the need to do something right. We lost track to the banks long time ago and the banks took over. By this even in my career, insurance companies own banks and it turned round and banks were owning insurance companies because we allowed them to get bigger than us and for investors then to start investing in the banks instead of insurance companies. Then we got to the position of small players and minor players.
Can insurance companies own banks now?
Yes. If you look at the financial sector in Nigeria, insurance is the only developed sector that can develop further. I will say the banks have saturated their development and having saturated their development, it came at the time when they have lost public fund because all of them are not in the retail. They were all busy servicing government accounts. You know government account is in Treasury Single Account (TSA) and they all have to sink and at the same time too, they have to look for investable funds from somewhere and the biggest generator of funds in any economy is insurance. So once we can get our acts together, we will be the darling of everybody once more.
How insurance funds can be utilised for infrastructure development
I wouldn’t say they are holding back. Insurance sector’s prudential requirement is very strict because insurance money, unlike other investments, is somebody else’s liability. That money, you are just keeping it in case something happens and you have no way of determining when something would happen except in life when the long term fund is easier to invest because you can predict through the mortality table, the time, expected time of such a person and then you can put his investments to match all this mortality points you must have calculated. So if you have funds that are long term and you believe someone’s policy will mature in 10 years, 20, 30 years, you structure your investments to mature around those times. But infrastructure investments in Nigeria don’t guarantee payment and don’t guarantee returns otherwise pension funds would have been largely put in infrastructure. But there is the consideration now by regulators with option about how money can be released to develop infrastructure and government is working on a law that would provide some protections to the funds and the guarantee of government also provides the funds both in insurance and pension. But because pension fund is growing much bigger, and you can imagine if the insurance has got their act together, this pension funds came from the insurance sector without being part of insurance penetration we are talking about.
Recapitalisation of insurance industry a pain in the neck
No, it is not. Why do you say that?
Because many companies have not recapitalised
No, the last of that exercise was in 2008 when we undertook the recapitalisation exercise. If you remember, it reduced the place from 120 to 56, which is almost like 50 per cent reduction. Because of the failure of some companies to meet the capital requirement, quite a few of them merged. They didn’t lose their license, rather, they merged with other companies to form formidable companies. But unfortunately, since we concluded that exercise, we have not done capital verification to confirm that the capital they claimed to have introduced was really introduced. But then, along came the financial crisis immediately after recapitalisation. So as we were trying to adjust our regulatory policies and operation, Riskbase came in and Reesbase now given opportunity to do that capital verification in a way because the solvency level is there anyway at the end of the the year. And we can tell now, insolvent companies should not be in today’s business not to talk of any higher class of business unless you have the risk base. Before you decide what your risk base capital is, you must need a minimum capital requirement (MCR). If you retain the MCR as it is for non life of N3 billion, we measure and see which capital is N3 billion because it will be N3 billion plus a percentage which will be the security gap. So we measure and see which company has up to N3 billion. And the company that doesn’t have, obviously would be told, ‘you have to increase your capital or else we will withdraw your license.’ But if you have N3 billion and up to N4 billion, what can N4 billion provide for the company? So if you measure your solvency and find it to be N4 billion, okay; now you have made a minimum and also got above a margin of a billion. Okay, what can N4 billion help you protect. Obviously, it can’t do Oil and LNG, it can’t build refinery, it can’t do aviation, for example, so we say, okay restrict yourself to general business excluding special risks. If you are into life insurance business and we see your solvency is below expectations, we tell you to restrict yourself to term assurance, or whole life and you cannot do annuity. So that is how it is and this measure is reviewed every six months or every one year and the amount of business you want to undertake would be determined by your directors and by the financial capital they can put behind you to support operation in that business.
So it is not a question of anybody doing any business he likes?
No, no, it would not be like that anymore because today you find somebody whose solvency level is not even determined competing for NNPC account with big players that are known to be big. It doesn’t make sense. And the small ones will afford to undercut because he needs the money and he may not be able to pay claims. That is the danger therein.
When we are starting capital verification
It is part of these rules we are releasing in the 2nd quarter. We are releasing the full implementation framework from the second quarter and it will show in it, the stages of each. As it is now, for companies that have solvency inadequacy, we will write to their directors and will give them 60 days by law to recapitalise. If you don’t, we escalate it by restricting the class of business you want to do. And we have already started. Very soon, certain companies will get notice on the need to improve on their capitalisation. But you know, you can’t make everything like that public otherwise you scare the public.
But if we see there is any danger to policy holders, we stop them from taking certain classes of business. We will restrict your expenditure, we will restrict your travels. There is a case where we stop management from traveling abroad because you find out the company has small claim of N250,000 and can’t pay but MD will buy a ticket and go for one conference where he will spend N5 million. That is not right.