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Annuity business bounces back, leads contribution to gross premium

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But few companies still struggle to catch up

By Rosemary Onuoha

AS the crises over transfer of all annuity assets under the management of life insurance companies to Pension Fund Custodians, PFCs, finally settles, growth in annuity business is now outpacing insurance industry’s total life premium income.

Vanguard investigations also show that this line of business could be a major revenue earner for some life insurers going forward.

It will be recalled that the National Pension Commission, PenCom, in 2016 directed life insurance companies to transfer all annuity assets under their custody to a PFC of their choice. The directive came on the heels of allegations that life insurers were mismanaging the annuity funds.

However, while some companies are beginning to benefit from annuity business, few others are still getting their fingers burnt.

Figures recently released by the Nigerian Insurers Association, NIA, showed that while gross premium income for life business increased by 27.6 percent (to N161.7 billion in 2017 from N126.7 billion in 2016), annuity business grew by 33.9 percent to a whopping N77.8 billion from N58.1 billion in 2016.

Individual life business

A breakdown of the figures show that while annuity business represented a 48 percent contribution to the life premium,  group life business added N44.6 billion to the life premium to represent 28 percent contribution, while individual life business added N39.3 billion to represent a 24 percent contribution.

The PenCom directive

Following the directive from PenCom that life insurers must transfer all annuity assets under their custody to PFCs, a cold war was generated between PenCom and the National Insurance Commission, NAICOM. However, in early 2017, both regulators issued a joint circular mandating life insurers to proceed with opening operational accounts with PFCs of their choice, thereby ending the controversy.

However, while some companies are smiling to the banks, others are not finding it rosy. Some insurance companies are gradually making profits even when the business appears too volatile for a few others.

Choosing between Programmed Withdrawal and Annuity

A breakdown of companies’ performance shows that Leadway Assurance came top of the ladder with gross premium income of N56.2 billion; Custodian Life Assurance recorded N7.7 billion; FBN Insurance Limited posted N6.76 billion; AIICO Insurance made N3.2 billion while ARM Life recorded N2.7 billion.

Negative figures

On the lower rung of the ladder, Great Nigeria Insurance recorded N16.9 million, while Royal Exchange Prudential Life recorded N18 million.

However, for companies that made profits from annuity business in the year in the first year of the transfer, Leadway Assurance was foremost with N11.6 billion profit. Standard Alliance made N597.3 million profit, FBN Insurance made N324.6 million profit, Niger Insurance made N85.5 million profit while Axa Mansard made N57.7 million profit.

Companies that had negative figures were Custodian Life with a loss of N823.4 million as well as Arm Life with N286.7 million loss.

What is Annuity?

An annuity is a fixed sum of money paid to a retiree by an insurance company for the rest of their lives. A retiree under the Contributory Pension Scheme (CPS) has the option to choose between buying an annuity with part of his pension savings from a life insurance company after retirement or take up programmed withdrawal of the pension savings with a PFA.

While annuity fund is domiciled with a life insurance company, the Pension Fund Administrator, PFA, is in-charge of administering programmed withdrawal.

The Pension law

The law establishing the Contributory Pension Scheme, CPS, gives retirees the option to choose between buying an annuity with part of their pension savings from a life insurance company after retirement or take programmed withdrawal which will be managed by a PFA.

As provided in the Pension Reform Act, while programme withdrawal pays pension to a retiree based on expected lifespan, annuity pays pension for life.

However, investigation by Vanguard Insurance shows that in recent times, there has been a radical change by retirees in preference for annuity as more people on daily basis are migrating from programmed withdrawal to annuity plan.

Preference for annuity 

On why retirees are migrating to annuity from programmed withdrawal, Mrs. Olasupo Adeyola, who retired from Africa Reinsurance Corporation, said she choose annuity because she believes that she will live a long life and annuity pays pension for life, hence the decision to take up an annuity plan.

Adeyola said, “I believe that God will give me long life and with my annuity plan, I will keep getting pension benefit for life.”

Adeyola charged administrators of the pension scheme to always endeavour to guide and direct retirees on the right plan to choose.

She said, “I have an annuity plan and have no regret being into annuity and will remain there. Initially, I was a bit skeptical about it, but the experience has been good as payment comes on 12th of every month and there is hope that it will continue throughout my life time.”

However, despite the positive reports of some retirees, some companies have found the annuity business to be volatile.

Former President of the Nigerian Council of Registered Insurance Brokers, Mrs. Laide Osijo told Vanguard Insurance that the annuity business is too volatile for some companies and some of them are not recording profits from the business.

She said, “While some insurance companies are seeing the annuity business as gold mine, others are witnessing erosion of profits and are even recording losses as a result of the volatility of the business. A company with relatively low annuity premium income in a year could have retirees that are collecting huge monthly benefits which could translate to a loss for such companies.”

Osijo said that those that consider the business to be volatile are gradually reducing their intake of annuitants, even as those on the positive side of the divide are making frantic efforts to enrol more annuitants.

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