NAICOM to commence risk-based supervision, capital verification

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The National Insurance Commission (NAICOM) will start checks on insurance companies through capital verification and Risk-Based Supervision (RBS) in the next few days, The Nation has learnt.

The Commission believes that the exercise will help reveal the true position of the 57 insurance firms in the country.

NAICOM spokesperson, Rasaaq Salami, told The Nation that the move would also ensure the protection of policy holders and beneficiaries of insurance contracts against unexpected losses.

Salami quoted the Commissioner for Insurance, Mohammed Kari, as saying: “The move has become necessary because since the last recapitalisation exercise in 2007, the business environment and the risk profile of all insurance institutions have changed. It will entail a verification of the assets and liabilities of all insurance companies.

“In order to ensure protection of policy holders and beneficiaries of insurance contracts against unexpected losses of companies, the Commission will undertake a verification of the capital resources of all insurance companies in the first quarter of 2017. The cost of this exercise will be borne by the companies. It will entail a verification of the assets and liabilities of all companies.

“In preparation for this, Boards are advised to ensure fairness in valuation of assets and liabilities of their companies when presenting the financial statements for the year ending December 31, 2016. All professionals that participate in the financial reporting supply chain are expected to ensure their duties in the valuation of assets and liabilities and issuance of opinion on financial reports are discharged creditably in accordance with relevant laws and professional standards.”

On Risk-Based Supervision, Salami noted that the final roadmap for the industry’s transition will be issued as indicated in the draft released last year.

“The Commission already has components of a risk based solvency regime in place, which will only be improved upon in the light of changes made in regulatory standards after they had been introduced and the operating context of the industry. While it is acknowledged that some time will be required to install a full-fledged risk based solvency regime for the industry, the reality does not preclude the operators from paying attention to the risk to which they are exposed to, as a result of their underwriting, operational choices, and relevant drivers in the business environment,” Salami said.

H e continued: “The Commission has noted that some Boards of Directors do not give adequate attention to the risk exposure of their business and the adequacy of their capital. It is assumed that such companies wait until the Commission informs them of the areas of concern and deficiencies in their solvency margin. The statement of compliance with risk management guidelines appears to be issued without regard to the realities of the companies concerned.

“In this regard, Boards are advised not to see risks and solvency management as just an issue for compliance, but as a practice worth imbibing by prudent and effective insurance institutions.

‘’On the Commission’s part, appropriate measures and tools are to be deployed to ensure companies that pose greater risk to the attainment of its regulatory objective receive more proactive and intensive supervision. Boards will be expected to consider the risk register and solvency condition of their companies during their quarterly Board meetings.

‘’With effect from 2017, the commission expects each company to send in report on Board’s assessment of their risk and solvency quarterly, as well as annual report on Own Risk and Solvency Assessment (ORSA).”

He further stated that all companies are required to have their appointed actuaries issue a Financial Condition Report (FCR) of their companies as at December 31, 2016, not later than March 31, 2017.

He added that a number of companies submitted their statutory returns for the year 2016 late, noting that some were yet to submit the required returns and without explanation.

“This deprives the Commission, policy holders, Insurance intermediaries, analysts and other stakeholders of the relevant information about the performance and financial condition of the companies, as well as the level of their compliance with relevant provisions of the law.

“The Commission is poised to implement relevant measures to discourage companies from filing late returns and sanction errant ones appropriately amongst others,This will include a detailed review of their accounting and financial reporting systems, restriction of certain activities until relevant returns are filed, action against officials accountable for financial reporting, as well as publicising the compliance status of Insurance Institutions on our website for public guidance.

“The Boards of companies are expected to take interest in the timely filing of Returns which, incidentally, contain information they need to effectively perform their oversight function. The non-rendition of Returns is, therefore, an indication of the failure of the Board.

“In order to facilitate the timely rendition of Returns, the Commission will carry out a review of the current Returns requirements and streamline them for more efficiency in preparation and submission. The transition to electronic submission will commence this year. All companies are required to send in their suggestions on areas for improvement not later than February 10, 2017,” he said.

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