Experts have called for urgent attention on increasing negative reserves of some underwriting firms in the country, saying, this is an indication of crisis.
Earlier, the 2016 Nigeria Insurance Digest, a publication of Nigerian Insurers Association (NIA) has revealed that 29 Insurers posted negative reserves amounting to N93.15 billion in 2016.
The report also shows that 15 Non-life operators posted N51.79 billion, while 14 Life operators posted N41.36 billion.
Reacting to this development, managing director, Lancelot Ventures Limited, Adebayo Adeleke, who is also a prominent member of Independent Shareholders Association of Nigeria (ISAN), noted that if 29 firms which is half of numbers of firms in the industry, have such challenges, it means the industry is really in trouble.
According to him, negative reserves denote that shareholders’ funds have depleted and that the firms are not making profits. He called on the National Insurance Commission (NAICOM) to really look into operations of most firms and encourage ailing ones to merge before they collapse and erode policyholders’ funds.
A researcher, Obinna Chikezi, said many reasons such as having claims above reserves, poor reinsurance protections for covers provided, high management expenses, low capitalisation and others could induce negative reserves. He said it will have negative effects on the ability of organisations to meet their obligations.
An anonymous operator had earlier said companies may have negative reserves if they incur more liabilities than their shareholders funds. The operator noted that excessive liabilities may arise mainly from inefficiency in underwriting and risk management.
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