By ZAKA KHALIQ,
The National Insurance Commission(NAICOM) and the National Pension Commission(PenCom) are making frantic moves to resolve the controversy surrounding the N167.8 billion Annuity Funds Arrangement, LEADERSHIP Friday can exclusively reveal.
It was gathered that the two regulators met recently to deliberate on grey areas, a parley which would lead to the release of a framework that will regulate the administration of Annuity Business in the country.
The framework known as Joint Service Agreement, according to findings, will explain in details how to pay the commission of agents and brokers who facilitate Annuity Business deals, as the current arrangement does not stipulate who pays the commission between the Pension Funds Custodians (PFCs) and the Life Assurance companies.
LEADERSHIP Friday investigations further revealed that the two regulators will differently examine the terms of the Service Agreement and later harmonize their respective position, after which the template will be made public, hopefully, within the next six weeks.
Annuity Funds currently stands at N167.84 billion, with over 34,312 annuitants.
As it stands, the controversial issues surrounding annuity business have led to loss of businesses belonging to life insurers to the Pension Fund Administrators(PFAs), leaving retirees are with Programmed Withdrawals as a viable retirement window.
While insurance operators are pushing for payment of commission from the annuity fund they mobilised, the current pension guidelines is against this.
Currently, all Life Insurance companies providing life annuity for retirees under the Contributory Pension Scheme (CPS) have proceeded to open Operational Accounts with PFCs of their choice, as directed by the regulators.
The two regulators had, through a circular in March, told life insurers that all new annuity purchased or being processed, should be domiciled in the dedicated account with the PFC referred to.
They stated that the treatment of all existing retiree life annuity funds and assets would be dealt with upon issuance of the joint regulations.
NAICOM, in the circular, was enjoined to ensure that Life Insurance companies comply with the requirements, while processing and approvals of new retiree life annuity requests shall continue forthwith.
PFAs were asked to resume the processing of new annuity requests for retirees and forward same to PenCom for necessary approval without delay, while PenCom was asked to ensure that PFAs transfer all approved premium for Retiree Life Annuity to the Operational Accounts opened by the Life Insurance Companies with PFCs.
Speaking on this development, the managing director/ CEO, AIICO Insurance Plc, Mr. Edwin Igbiti, said because of the ongoing issues in Annuity, his company had to scale down its Annuity business, adding thatvthe company will reexamine its approach after PenCom and NAICOM may have finalised the arrangement.
He said, “There are some grey areas in the current arrangement in the sense that when you transact a business and it involves an intermediary, usually a broker or an agent, we are expected to pay commission to the intermediary.
“But the prior arrangement or template the PFCs are giving to the market is not acceptable to the market and we have raised an eyebrow on this and said, ‘who pays these agents’ because, remember, they are not Father Christmas. They wants to earn income”.
Since the cash flows no longer passes through the underwriters, as it now moves from PFAs to PFCs, he said life insurers are only acting as a custodian, instructing the pension operators on where to invest.
Igbiti continued: “By so doing, we can’t pay from our own operations, since we didn’t receive cash. That is where the grey area is and you know, before PenCom can release any money, you must take permission.
“Moreover, at the end of the period, Annuity is subject to valuation and when you value the business, it might result in a profit or loss. When it result in a profit, we are expected to book it. When it result into a loss, you should look for a fund to block that gap. That is the issue”.
All these, he stressed, must be well spelt in the joint Service Agreement to assist both regulators and operators.
A Pension expert, Mr. Emeka Okeagu, said he 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, even as he said it rather placed a joint responsibility on them, asking them to issue guidelines for the business jointly.
The law, he added, is 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 if it is a pension product, then custody of the assets should rightly be with PFCs as demanded by PenCom.
He explained 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 and as such, the two regulators(NAICOM and PenCom) feud over control of RLA assets, he pointed out.
Speaking on how to resolve the current annuity funds controversy at 2016 Business Today Online Award in Ikeja, Lagos, the Group Managing Director of Royal Exchange PLC, Alhaji Auwalu Muktari, said it was important that the insurance industry speaks with one voice and presents a unified front in the campaign to ensure the Annuity funds remains with the life companies.
“Losing over N150billion to the PFCs will result in a deep cut in the pockets of life insurance companies in Nigeria and will be the second time the insurance industry is losing a part of its business, after the transfer of Workmen’s Compensation to the National Social Insurance Trust Fund (NSITF)”, he opined.
While urging NAICOM to be alive to its responsibility of safeguarding the insurance industry by ensuring that friendly policies are initiated, he said, “This way, we will all witness an insurance industry that will be a net contributor to the nations’ economy”.
A former director general of Lagos State Pension Commission(LASPEC), Mr. Rotimi Hussain, feels however that the current annuity arrangement was more of blessings than a threat for insurance industry.
He urged life insurers to restrategise and embark on aggressive marketing of annuity policy to take advantage of the huge N6 trillion pension assets in the country.
The Annuity Policy is a financial product that allows for periodic payments to be made to the person who has made a lump sum or periodic payment to the insurance firm (in this case, Royal Exchange) from a predetermined date. It could be of two types, namely immediate and deferred.