Insurance companies involved in managing annuity policies as provided in the Pension Reform Act 2004, as amended in 2014, are playing cautious on intake of new businesses as a result of rising risk profile.
BusinessDay findings show that the cautious game is coming on the heels of increasing lifespan of subscribers, falling returns on investment instruments including bond yields and treasury bills, as well as shortage of long-term instruments to invest the funds.
According to some players, when people who retire at age 50 or more now live for extra 40 years, it means a lot of pressure will mount on annuity managers, who now must make sure these risks are properly managed to save the managing institutions as well as being able to meet payment obligations to subscribers.
Annuity for Life Policy is a retirement instrument option for retiring employee offered by a Life Insurance Company licensed by the National Insurance Commission (NAICOM).
Annuity for life, as it is popularly called, is a type of annuity contract that provides, in return for a lump sum, a monthly or quarterly payment starting immediately after retirement and continuing for the rest of the retiree’s life.
The contract is often purchase by retiring persons who want an income that is guaranteed to last for the rest of their lives, no matter how long that might be.
- 7 (1a) Pension Reform Act 2014 states that: “An employee on retirement shall procure Annuity for Life Policy or Programmed Withdrawal.” The lump sum for the procurement of Annuity for Life Policy or Programmed withdrawal must have been accumulated through series of employer/employee contributions into the Retirement Savings Account of the retiring employee throughout his/her working career.
PenCom’s first quarter 2019 report shows that the Commission has approved a total of 4,264 applications for retirement under life annuity during the quarter, bringing the total number of retirees receiving their retirement benefits through the annuity plan to 65,916 from inception. The 4,264 retirees during the first quarter paid premium of N24.81 billion to insurance companies, resulting to total premium of N353.69 billion and monthly annuity payments of N3.52 billion as at the end of first quarter, 2019.
At the moment, major insurance companies including AIICO Insurance, African Alliance Insurance, LASACO Insurance who play big in annuity, say they are being cautious because you could born your fingers if you do not watch your risks profile.
Tunde Fajemirokun, managing director/CEO of AIICO Insurance plc, had said during a media interaction that annuity business was contributing a huge premium to the life insurance business in the country.
Fajemirokun said AIICO would continue to take advantage of this opportunity, but managing effectively its risks exposure to ensure it continued to add value to its portfolio mix.
Funmi Omo, managing director/CEO, African Alliance Insurance plc, says annuity is a major aspect of our business but again, we are being careful not to overload our portfolio because you must watch what you are taking against it maturity period.
Segun Balogun, managing director/CEO, LASACO Assurance plc, who spoke through Oladimeji Abiola Olona, general manager, LASACO, life annuity business is what insurers want to do to deepen penetration.
“You are going to collect money, so you must be sure where you are going to invest the money to yield the kind of returns that will match the risks you are carrying,” he says.
Balogun said LASACO is not a major player in annuity because we are playing caution and prioritising risks management.
Don’t forget that it is a promise to pay for life, and a lot of the retirees are living up to 40 years in retirement, meaning you will have to pay the person till the last day of his life without stopping. So, you must also ensure that that you do not kill the institution that you have inherited from some people, so that is why we are being cautions. We may not be a major player in annuity, we may be oil and gas, we may be motor business and group life.
The National Insurance Commission (NAICOM) recently expressed optimism about its expectation for growth in insurance business through annuity.
According to Sunday Thomas, acting commissioner for Insurance, annuity is the next big business for Insurance industry, stating that the country’s growing pension funds now almost N10 trillion will empty itself in insurance through annuity.
He says this is premised on growing awareness among retirees and contributors about the benefits of annuity for life as a unique retirement product.
To this end, he said NAICOM and PenCom were already reviewing the product, as well as group life assurance policy and would come out with new regulation by the first quarter of this year.
This Thomas said was aimed to protect subscribers and customers of the insurance, and ensure that their interests are protected.
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