Large number of insurance firms post negative reserves

Matthew Otoijagha
Twenty nine insurance companies have negative reserves a report by the Nigerian Insurers Association (NIA) has revealed.
According to the 2016 Nigeria Insurance Digest, Produced by the association, the firms posted negative reserves amounting to N93.15 billion in 2016. The NIA report revealed that 15 Non Life operators posted N51.79 billion, while 14 Life operators posted N41.36 billion.
Speaking on the development, stakeholders said the insurance industry needs urgent attention as negative reserves is an indicator of crisis. 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 induced negative reserves.
He said it will have negative effects on the ability of organizations to meet their obligations.
Managing Director of an insurance firm, who would not want to be named, said companies may have negative reserves if they incur more liabilities than their shareholders funds.
The operator noted that excessive liabilities may arise mainly because of inefficiency in underwriting and risk management. An agent said several things could have led to the development, prominent amongst them he said, are corruption, quest for expansion and mismanagement.

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