African Alliance Insurance in financial mess

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African Alliance Insurance ‘s five-year financial result has revealed a worrisome outcome, Naija247news has been told.

African Alliance, a life insurer, which is preparing to celebrate its 60 years’ anniversary, appears to be in a critical condition.

This is going by the company’s five- year financials obtained by The Nation from the firm’s website. It showed negative in Solvency Margin, Shareholders Fund and Annuity Cover.

The result showed an erosion and depletion of Shareholder’s Fund to the tune of N281.56 million and Solvency Margin deficit of 376 per cent as recorded in its 2017 financial result.

The company solvency margin is in deficit of 376 per cent in the period under review, which is below the minimum regulatory capital of N2 billion required by the National Insurance Commission (NAICOM) for life insurance business.

This constitutes non-compliance with the regulatory capital requirements. The continuation of the company’s operation is dependent on its ability to meet its regulatory capital requirement and generate sufficient cash flows to meet its obligation as they fall due.

Similarly, the company’s annuity fund has been eroded. The Annuity Fund Solvency Margin is a negative of 10.69 per cent, far less than the 30 per cent required minimum solvency stipulated by the Pension Reform Act (PRA) Annuity Regulations.

As shown in 2016 and 2017 results, the company has in the past two years been operating a negative solvency margin of N2.6 billion and N5.52 billion respectively. This showed that the financials of the company worsened in 2017 compared to the previous year.

It posted a negative gross solvency margin of 130 per cent for 2016 and the shortfall in assets cover for contract liabilities of N2.23 billion was negative, indicating that the company will be unable to meet its contract liabilities when they fall due.

The situation deteriorated in 2017 with a negative net solvency margin of 376 per cent and a shortfall in assets cover for contract liabilities of a negative of N6.084 billion.

Despite the resolve of the company’s Board and management to turn around the situation in 2017, according to their 2016 report, the situation deteriorated.

Other indices such as Profit after Tax, Gross Premium Written, Assets and Liabilities also declined. It also made loss of N4.16 billion in its Profit Before Tax in 2017 as against the N3.216 billion made in 2016.

Its Gross Premium Written also fell by N6.6 billion in 2017 from the N12.9 billion it recorded in 2016.

Consequently the company may need an urgent intervention by the regulatory authority for it to meet its major obligation of claims payment to policyholders. According to the company’s financial report, the latest available actuarial valuation of the liabilities for Annuity Fund of the company as at 31 December 2016 was carried out by HR Nigeria Limited.

The report read: “The book value of the liabilities for Annuity Fund in 2016 is N27.26 billion. The minimum required solvency margin is N8.17 billion and the available Shareholder’s Fund is N3.6 billion which is less than the required minimum solvency requirements stipulated by the Pension Reform Act (PRA) 2014 Annuity Regulations under the supervision of the National Penion Commission (PenCom). The PRA Annuity Regulations require the life insurer to demonstrate a minimum solvency margin of the Annuity Fund of 30 per cent.”

In the 2017 financial report, the company’s retained earnings is a negative of N26.15 billion. This is the amount set aside from their previous losses over the years.

Further checks by The Nation showed that the company had a shortfall of solvency cover of N4.579billion, which is just 7.57 per cent solvency cover for Annuity Fund as at December 2016 as against the 30 per cent required by law.

As stated in the financial statement: “The National Insurance Commission (NAICOM) specifies the minimum amount and type of capital that must be held by the company to cover the insurance liabilities. The regulator measures the financial strength of insurance companies using the capital adequacy requirements for the category of company. This test compares insurer’s capital against the risk profile.

“The book value of the liabilities for Annuity Fund is N30.09 billion for 2017 report. The minimum required solvency margin is N9.028 billion and the available Shareholder’s Fund is negative of N281.56 million, which is less than the required minimum solvency requirements stipulated by PenCom’s PRA Annuity Regulations. The PRA Annuity Regulations require the life insurer to demonstrate a minimum solvency margin of the Annuity Fund of 30 per cent.

On the company’s 2015 result, the report stated: “The total admissible assets of the company less the net insurance and investment contract liabilities is a deficit of N4.817 billion. The shareholders fund is N613 million. The company also recorded a negative Solvency Margin of N5.727 billion.

“This is below the minimum regulatory capital of N2 billion required by NAICOM for life insurance business. These constitute non-compliance with the regulatory capital requirements. The continuation of the company’s operation is dependent on the ability to meet its regulatory capital requirement and generate sufficient cash flows to meet its obligation as they fall due,” the report read.

According to the company’s Auditors, Deloitte & Touche (Chartered Accountants), As at December 31, 2017, the company and the group made Loss After Tax of N3.7 billion and N6.2 billion. Added to this is a negative Solvency Margin of N5.5 billion.’’

Delliotte added that the total admissible assets of the company less Net Insurance and Investment Contract Liabilities amounted to a deficit of N6 billion. These conditions indicate the existence of a material uncertainty that may cast doubt on the company’s and Group’s ability to continue as a going concern.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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