Delphine Traoré Maïdou, regional COO for Allianz in Africa, was announced as Insurance CEO of the Year at Africa Re’s African Insurance Awards for her previous role as CEO of Allianz Global Corporate & Specialty (AGCS) Africa.

Held in Kampala, Uganda on May 22 at the African Insurance Organization’s (AIO) 44^thConference, the awards foster best corporate management, leadership, governance as well as innovative and sustainable growth in the insurance sector.

“I would like to acknowledge and thank leaders in Africa for guiding me in shaping my career since my return to the continent five years ago. Importantly, I would like to thank Allianz for giving me the opportunity and the platform to contribute towards the development and growth of insurance in Africa,” said Delphine, who worked in North America for close to twenty years.

The CEO of the Year Award is given to managing directors of insurance companies for demonstrating sound management and leadership through the promotion of professionalism and best practices in their own companies and across the continent.

The event also recognised her efforts in developing and growing the insurance sector as President of the Insurance Institute of South Africa (IISA) and member of the African Risk Capacity’s Outbreak & Epidemic (O&E) Advisory Panel.

This is the second award Delphine receives this year. The first was for CEO of the Year from Africa Economy Builders Awards in April.Under her leadership, AGCS Africa expanded its number of employees and range of insurance solutions for corporate clients significantly across the region.

She has transformed the IISA resulting in the appointment of its first black female CEO Designate and enabled it to collaborate with similar institutions across the continent on education and skills development.

As a member of the O&E Advisory Panel of the African Risk Capacity from 2016, Delphine contributes to the development of insurance solutions for the African Union against outbreaks and epidemics.

At the beginning of this year, Delphine was appointed to the Board of management of Allianz Africa where she is responsible for the development of the Allianz Group’s business in the continent. She remains a non-executive member of the board of management of AGCS Africa.

Failure to implement the Guaranteed Minimum Pension in the Pension Reform Act 2014
… Impact on the welfare of Nigerian pensioners

Presented by: Dr. Pius Apere (PhD/FCII)
(Actuarial Scientist and Chartered Insurer)
Managing Director/CEO
Linkage Assurance PLC
Email: [email protected]
Tel: +234(0)8090717471
May 2017

Introduction

Nigerian Pensioners have high expectations on National Pension Commission (PENCOM) and/or Government to timely, efficiently and effectively implement all provisions of pension regulations. These expectations arise from the need to have sustainable standard of living in retirement.

Under the prevailing pension regulations in Nigeria, one of the ways to achieve the pensioners’ social welfare goal is the implementation of the guaranteed minimum pension (GMP) as provided in section 84(1) of the Pension Reform Act (PRA) 2014 as amended, which states that “all Retirement Savings Account (RSA) holders who have contributed to  licensed Pension Fund Administrators (PFAs) for a number of years to be specified by the Commission shall be entitled to a guaranteed minimum pension as may be specified from time to time by the Commission”.

The GMP is akin to an income support from the government and can be considered as a variant of social security policy that ensures redistribution of resources to its populace. In this case, it acts as a safety net for pensioners.

In practice, the GMP is a form of underpin applicable in a defined contribution (DC) scheme, such as the Contributory Pension Scheme (CPS) currently being operated in Nigeria, which has a main benefit that is defined contribution in nature, with a promise that the benefit will be at least a defined benefit (DB) amount (i.e. the GMP), usually a percentage of final salary at retirement date.

The importance the Government attached to the welfare of retirees has led to the provision of the GMP in the Act. It is however surprising that the PENCOM is yet to finalize the modalities, for the implementation of the GMP, more than ten years after the CPS was established in the country since 2014.

This paper highlights some of the implications of the failure of PENCOM to implement the GMP as provided for in the Act.

The Rationale for GMP Provision in PRA 2014

The traditional thinking has been that members in DC schemes bear all the risks and rewards and receive whatever outcomes are produced at retirement. These DC schemes may have the legal ability to adjust members’ liabilities including contribution rates automatically, as asset values move up or down,therefore limiting the need to immunize asset/liability movements. This is a scenario where no GMP is applicable.

On the other hand, a DCsystem such as CPS under PRA 2014that forces compulsory contribution rates (section 4(1) of PRA 2014) and entails significant tax concessions (section 10 of PRA 2014) should not, under reasonable circumstances, be left to require members to bear all risks over many decades of membership. Thus, the introduction of guaranteed minimum pension (GMP) in section 84(1) of PRA 2014 is quite appropriate with the aim to reduce the risk of volatility in standard of living in retirement facing the pensioners. Thus, the investment risk and cost of GMP are not only borne by RSA holders but also by PENCOM, Pension Operators and Government.

TheGMP is usually to protect the scheme members (RSA holders) against some of the risks of low investment returns, particularly in the event of exceptionally poor investment conditions, for instance, during the global economic crisis in 2008 and particularly the economic down turn currently being experienced in Nigeria.

Furthermore, a more generous GMP may also be applied on a temporary basis after a conversion of a scheme from a defined benefit form to a defined contribution form, and thus, the implementation of GMP would had been very appropriate immediately after the introduction of the Contributory Pension Schemes (CPS) in 2004.

Funding of GMP

PENCOM had been mandated to establish and maintain a fund to be known as the Pension Protection Fund (PPF) for the benefits of eligible pensioners approved or recognized under section 82(1) of PRA 2014.The Fund would be applied to fund the minimum pension guarantee and also pay compensation to eligible pensioners for shortfall or financial losses that could arise from investment activities, amongst others.

The PPF requires funding by the Government, PENCOM and Pension Operators.Section 82(2) of the PRA 2014 states that the” PPF shall consist of:

• An annual subvention of 1% of the total wage bill of total monthly wage bill of employees in the Public Service of the Federation towards funding the GMP;
• Annual pension protection levy paid by PENCOM and all licensed operators (PFAs) at rate to be determined by PENCOM, from time to time; and
• Income from investment of the PPF.”

Indeed, the funding of GMP is the responsibility of the government in other jurisdictions (such as in the UK and Chile, just to mention a few) to ensure that pensioners will not have less than a certain amount to live on. In Chile the cost of funding the GMP is expressed in terms of the nation’s Gross Domestic Product (GDP). This metric is more appropriate than that specified in (a) above, since private sector employees in CPS who retiree may also qualify for GMP. There is no indication that the Federal Government has started contributing the required 1% of its employees wage bill since the Government is still struggling to fund the accrued pension liabilities of existing pensioners under the old DB pension regime.

The Current Annual Pension Protection Levy (APPL) is 3% of management fee earned by operators, as determined by PENCOM in October 2016. The current levy is not likely to be adequate to fund the GMP for private sector retirees.

The income from investing PPF is likely to be small as fixed income securities may constitute a greater proportion of its investments relative to investing in equities.

As employees of organizations with less than three employees as well as self-employees shall be entitled to join the CPS (section 2(3) of PRA 2014), the number of future retirees qualifying for GMP is likely to increase exponentially over time. Thus, there will be a corresponding increase in future GMP liability which is also likely to put a strain on PPF, having considered the funding methodology as stated in the Act in the light of present economic situation in Nigeria.The number of retirees qualifying for GMP will be reduced if many employees are encouraged to make annual voluntary contribution (AVC) and this will in turn reduce the strain on PPF.

Thus, the adequacy of the PPF will be tested if the GMP is fully implemented to take effect retrospectively, thereby allowing all those who have retired since the contributory pension scheme was established in 2004 to qualify for the GMP provided the level of pension in payment is below the GMP to be set by PENCOM.

The Implications for Non Implementation of GMP

Despite the importance of GMP in managing the pensioners’ standard of living in retirement, the implementation of GMP has not commenced since the CPS was established in 2004. The delay in implementation of GMP could be attributed to the following:

• Computational complexities. The assessment of the level of GMP and the cost of GMP requires stochastic modelling techniques. This is clearly a task which should be under the control of an actuary and as such PENCOM should obtain the relevant actuarial professional services.
• Availability of required funds to finance the GMP. For instance, in April 2017, the federal government released the sum of N54million out of the outstanding Accrued rights. Accrued rights are benefits which the workers who were in the public service prior to 2004 when the CPS was introduced are entitled.

The effects of non-implementation of the GMP on the welfare of pensioners are summarized thus:

• Increased low standard of living or high poverty incidence among current pensioners due to no pension increases allowed for under the CPS. TheGMP (if implemented) would have cushioned the effect of no pension increases.
• There is a growing sense of disenchantment among current pensioners under the new CPS because of the token monthly pension benefits they have been receiving over the time relative to the huge gains (from investment returns and dividends) the Pension Fund Administrator (PFAs) are currently making. The GMP (if implemented) would have eliminated the disenchantment among current pensioners.
• Non-implementation of GMP provisions in State Governments’ Pension Laws. The State Governments in Nigeria have also enacted their Pension Laws (to include the GMP provisions) in line with PRA 2014 for the Federal Government employees. The non-implementation of GMP by PENCOM has also led to the State Governments to ignore the existence of GMP provision when implementing their Pension Laws. For example, State Governments such as Lagos State which can afford to implement a GMP for its retirees are not making any effort to introduce the GMP.
• The delay in implementation of GMP by PENCOM has defeated the original aim of the GMP provision in PRA 2004 as amended under PRA 2014, particularly during this period of economic recession when the pensioners’ incomes have been eroded by inflationand thus they are living in poverty in retirement.
• The resultant effect of non-implementation of GMP is the increase in likelihood of more pensioners dying in Nigeria than expected as a result of significant reduction in future pension income to live on.
• In addition, the delay in the implementation of GMP has created room for a call by a section of the Senate for amendments of section 7(1) of PRA 2014 to allow for a lump sum withdraw of up to 75% as against 25% upon retirement as a result of the economic hardship current pensioners are experiencing.

If the proposition is allowed and passed, it implies that more pensioners will qualify for the GMP with the resultant additional strain on the PPF. Also, there is high tendency for the remaining 25% of RSA balance to provide a relatively meagre pension benefits. Thus, this would further deteriorate the future welfare or standard of living of pensioners, leading to more deaths in retirement than expected.

However, the 25% lump sum payout of the RSA balance is, in practice, the ideal payout proportion not only in a DB scheme but also in a DC scheme. Hence, the proposition of 75% lump sum payout will more or less make the CPSa gratuity scheme rather than a pension scheme.

• Above all, the failure of previous PENCOM Board(s) to implement the GMP has given the newly constituted Board an immediate challenge and/or priority to implement the GMP if it is to be seen as providing for pensioners’ welfare.

Conclusion

There is no better time than now to implement the GMP as the current pensioners are in dare need to have a sustainable standard of living in retirement in this period of serious economic hardship facing the country.

The African Trade Insurance Agency (ATI) held its 17^thAnnual General Meeting last week.

The sustained commodity price decline and current geopolitical uncertainties took centre stage. Meeting participants urged African governments to intently focus on growing intra-African trade and diversifying their economies away from commodity reliance in order to reduce vulnerability to external shocks.

With sub-Saharan Africa’s GDP growth rates expected to hit a record low of 1.5% depressed commodity rates are seen to be one of the major drivers with export producers accounting for two-thirds of the region’s growth.

Set against a backdrop of increased geopolitical uncertainties that could prove challenging for improved growth, H.E. Patrice Talon, President of the Republic of Benin and Hon. Henry Rotich, Cabinet Secretary, National Treasury of Kenya delivered opening addresses that pointed to ATI as a vital partner in supporting Africa’s journey toward diversification, self-reliance and more sustainable growth.

In 2016, ATI facilitated financing of trade and investments in Kenya valued at close to USD800 million which represents around 1.2% of Kenya’s GDP. Similarly, in ATI’s two newest member countries, Ethiopia and Zimbabwe, the company supported USD400 million worth to trade and investment to these economies.

“This is a very significant contribution to our economy. It demonstrates real benefit because these financial flows could not have been realised without the support of ATI,” noted Hon. Rotich.

During the opening ceremony, which attracted leaders from the public and private sectors across Africa, ATI announced its 2016 results. The pan African investment and credit risk insurer posted record results for the sixth consecutive year.

ATI has moved from being loss making as recently as 2011 to posting a positive net result representing a 36 percent increase over 2015.  Among other factors, ATI attributes this success to stronger partnerships with African governments, who increasingly see the value of ATI to their growth and development objectives.

In 2016, ATI’s impact in Africa and globally continued to increase. In the last six months, the company attracted new members Côte d’Ivoire, Ethiopia, Zimbabwe and earlier in 2016, the UK’s export credit agency, UKEF.

ATI also insured USD4 billion (KES405 billion) worth of trade and investments into its African member countries while backing strategic projects such as the USD159 million loan from the African Development Bank to support Ethiopian Airline’s fleet expansion.

ATI also underwrote the first deal in a non-member country in Angola in Q-1 2017, reflecting the company’s new pan-African mandate.

During the closed meeting of the General Assembly shareholders discussed the company’s 2016 annual accounts and financial statements in addition to recovery of funds from defaulting member countries, the establishment of constituencies that will accommodate ATI’s regional expansion and election of Directors and Alternate Directors.

ATI is a multilateral investment insurer that was formed by COMESA member countries with the support of the World Bank in 2001. Since then, ATI has expanded to include countries in the ECOWAS region.

The company provides a range of products that mitigate risks impeding the flow of investments and trade to and within Africa. As of 2016, ATI has cumulatively supported USD25 billion (KES2.5 trillion) worth of trade and investments into its member countries since inception.

ATI’s Key 2016 Results:

• Volume of Business Supported Since Inception: USD25 billion (+ 16%)
• Insured Trade & Investments (Gross Exposure): USD1.9 billion (+ 16%)
• Gross Written Premium: USD29.5 million (+ 27%)
• Net Earned Premium: USD12 million (+ 20%)
• Profit: USD6.4 million (+ 36%) – On a comparable basis
• Cost Ratio: 35% (-30%)
• Return on Equity: 3.2% (+ 28%)
• Shareholders’ Capital: USD202 million (+ 12%)
• Rating (S&P): A/negative

L-R: Deputy President, Nigerian Council of Registered Insurance Brokers (NCRIB), Mr. Shola Tinubu; Chief Executive, British Insurance Brokers Association (BIBA), Mr. Steve White; NCRIB President, Mr. Emmanuel Okunoren and Executive Secretary, NCRIB, Mr. Fatai Adegbenro at the ongoing BIBA Conference in Manchester, United Kingdom.

The new Managing Director of the Nigeria Export-Import Bank (NEXIM), Mr Abubakar Bello yesterday ceremonially took over the reins of leadership of the Bank from Mr. Bashir M. Wali, who was the Acting MD till Thursday, April 20, 2017.

The handover ceremony was a mere formality as the new team headed by Mr. Bello had resumed at the Bank with immediate effect on April 21st upon their appointments by President Muhammadu Buhari as communicated to the NEXIM Bank by the Office of the Secretary to the Government of the Federation (SGF) on Thursday, April 20th, 2017.

Mr. Eddie Efekoha, Chairman, Nigerian Insurers Association (NIA) says the insurance industry in West Africa needs uniform regulation to create standard for insurance market across member states in West Africa, promote technical knowledge sharing amongst member state underwriter and regulators, standardise certain insurance product package and benefits and promote confidence and business sharing or exchange among players within the sub region.

Efekoha said in a paper he delivered at the 2017 WAICA conference in Banjul, The Gambia that other benefits include need to increase  the existing low level penetration, have a harmonised regulatory standard, reduce premium flight outside the region and need to have an insurance framework to support regional business transactions

He said however that a harmonied regulatory regime in the region could face challenges due to

differences in the soundness of national macroeconomic and financial sector policies, nations are at different levels in the development of public infrastructure, effectiveness of market discipline and efficiency in financial markets differs within the region, absence of a single currency, governance structure of the various national regulatory system are not the same, state of development of the legal systems are at various levels and differences in level of technological growth.

“The insurance sector represents a significant part of the financial system and plays an important role in the economy. Regional business walls in the supply of insurance products are increasingly being broken down, institutions and individuals may want to leverage arbitrage opportunities hence the need for regulation. Regulation of insurance business in the West Africa sub region is largely underdeveloped. There are basic differences in insurance supervisory standards within the sub-region.”

Efekoha said the objectives of insurance regulation includes minimising and where possible prevent anything that routinely causes insurers to go out of business and unable to pay claims, prevent unfair and deceptive policies and practices since insurance contracts promise to make certain payments under certain conditions at some point in the future, ensure that adequate information are available to consumers of  insurance products and to encourage the availability of insurance products that have been made compulsory.

He recommended strengthening the individual countries’ regulatory structure through total autonomy,

ensure financial independence of the regulatory system in each of the countries within the sub-region while regulatory institutions should build the needed human capacity for effective market surveillance.

“There must be deliberate efforts to foster relationship within the sub region financial sector. Trade Associations must be strengthened to play a collaborative role in the harmonisation process. Technical capacity requirement amongst member states must be standardised. Build on the ECOWAS Brown Card System. Borrow a leave from the francophone countries, already have a harmonised regulatory framework and need to build African market for African. “

The on-going reforms in the Nigerian Insurance sector being driven by the industry regulator, the National Insurance Commission (NAICOM) would increase industry capacity for big ticket accounts, greater contribution to GDP and more value creation for shareholders.

According to Dr Pius Apere, Managing Director/CEO, Linkage Assurance Plc “one of the reforms, ‘Risk Based Capital Regime in the Risk Based Supervision Framework’ would further redefine the way insurance is delivered in this country and offer more rewarding benefits to the generality of Nigerians.

Dr Apere made the remarks at the Nigerian Stock Exchange during the closing gong ceremony on the floor of the NSE.

Apere who led other directors and executive management to the NSE said insurance in Nigeria is now better positioned to reward investors, as capacity for business has grown as well as increased consumer awareness.

“The Risk-based Capital supervision (RBS) about to be introduced by the insurance regulator (NAICOM) in the near future, when fully implemented, will increase the need for capital injection within the Nigerian insurance industry in order to underwrite more special and/or large risks.”

“This is likely to increase mergers and acquisitions within Nigerian insurance industry. Consequently, the drive to inject new capital (through foreign and local investors) will surely increase the trading activities of most insurance companies’ shares/stocks on the Exchange.”

He told stockbrokers and management of the NSE that Linkage Assurance Plc has repositioned to deliver increased value to all stakeholders, assuring its investors that the company going forward would continue to enhance returns on investment for its shareholders.

Apere further informed the stockbrokers that the future looks bright for the company, given the result of its restructuring which is beginning to impact on the company’s overall performance.

“Linkage Assurance Plc is currently underwriting only non-life insurance business with 14 branches operating across the regions in Nigeria. The Board of Linkage’s current strategic direction is to diversify the company’s business activities in order to achieve a sustainable growth in gross premium income (GPI) thereby increasing market share and adding more value to its shareholders in the nearest possible future.”

He also stated that the strategic business plans of the company may include underwriting of life insurance business in order to become a composite insurance company leading to enhancement of its competitive advantage.

“The above would require new capital injection in order to achieve this strategic decision. Thus, we are likely to engage the services of the stock brokers to raise the required capital.”

Linkage Assurance Plc recently unveiled seven new products as part of its strategy to deepen penetration and gain larger market share.

“Linkage has recently repositioned itself to demonstrate innovation and creativity by designing and launching budget-friendly insurance products in order to deepen the insurance penetration required within the Nigerian insurance industry, Apere said.

“We are poised to become more competitive and that is why we have developed these products to meet customers need.”

The new products include Linkage Estate Insurance Plan; Linkage Events Insurance Xclusive; Linkage SME Comprehensive Plan; Linkage Shop Insurance Cover; Linkage Citadel Shield Plan; Linkage Purple Motor Plan and Linkage Third Party Plus.