University of Nigeria Research Publications

EZENTA, Agnes Uzonwa

Aut

hor

PG/MBA/95/18903

Title

Performance Evaluation in Service Organizations: Case study Insurance Industry

Facu

lty

Business Administration

Dep

artm

ent

Accountancy

Dat

e July, 1998

Sign

atur

e

PERFORMANCE EVALUATION I N SERVICE ORGANISATIONS:

CASE STUDY INSLIRANCE INDUSTRY /'

EZENTA, AGNES UZONWA (MRS)

PG/MBA/95/18903

PROJECT REPORT

SUBMITTED I N PARTIAL FULFILMENT OF THE REQUIREMENTS

FOR THE AWARD OF THE DECREE OF MASTER OF BUSINESS

ADMINISTRATION (MBA) IN ACCOUNTANCY.

DEPARTMENT OF ACCOUNTANCY

UNIVERSITY 01' NIGERIA

ENUCU CAMPUS

CERTIFICATION

The work embodied i n t h i s p r o j e c t i s o r i g i n a l and

has no t been submitted i n p a r t o r i n f u l l f o r any o the r

Diploma o r degree of t h i s o r any o t h e r u n i v e r s i t y .

(STUDENT)

This i s t o c e r t i f y t h a t Mrs Agnes U . Ezenta, a pos t

graduate s tudent i n t h e department of Accountancy and wi th

t h e R e g i s t r a t i o n number PG/MBA/95/18903 has s a t i s f a c t o r i l y

completed t h e requirement f o r p r o j e c t r e sea rch i n p a r t i a l

fulf i . lment of t h e requirement f o r t h e award of Masters i n

Business Administration (MBA) i n Accountancy.

iii

DEDICATION --

T o God Almighty and my family.

ACKNOWLEDGEMENT

I acknowledge w i t h thanks t h e con t r i bu t i ons o f o t h e r i nd i v idua ls

a n d co rpo ra te organisat ions in ma king t h i s research a success.

I especia l ly w ish t o exp ress m y hear t fe l t g r a t i t u d e t o my s u p e r v i s o r

Prof. Mrs. Uche Modurn whose mothe r l y concern a n d a t t e n t i o n

made the complet ion o f t h i s w o r k possib le.

My t h a n k s also g o t o k t u r e r s o f t h e depar tment o f Accountancy

U n i v e r s i t y o f N ige r ian E n u g u Campus a n d some managers o f insurance

con~panies in P o r t l l a r c o u r t f o r t h e i r suggest ions a n d adv ice .

I apprec ia te a n d reverence the he lp rendered b y Mr. S.I.

Cwkey - CAM who supp l i ed a l l t h e annua l r e p o r t s a n d accounts

f o r most o f t h e companies sampled a n d f o r t he 5 years .

T o m y bes t f r i e n d or) e a r t h a n d husband I can o n l y say

" t h a n k y o u so much". It w i l l b e d i f f i c u l t t o exp ress in W r d s h i s

con t r i bu t i ons t o t h e successful complet ion o f t h i s work . It rnay

j us t su f f i ce t o say t h a t a p a r t f rom God A lm igh ty who spa red rny

l i fe, m y be loved husband i s t h e s t r o n g p i l l a r t h a t s u p p o r t s me.

v

ABSTRACT

T h e insu rance decree o f 1991 was e d t o repea l a n d

e x p a n d t h e fo rmer insurance laws. T h i s new decree as o b s e r v e d

b y insurance p rac t i one rs conta ined more s t r i g e n t prov is ions , t h u s

mak ing it more d i f f i c u l t f o r i n s u r e r s t o cope w i t h t h e requ i rements .

T h i s research was conduc ted t o evaluate t h e per formance

o f i n s u r e r s who a r e t h e p i v o t o f t h e i nsu rance i n d u s t r y a n d whom

most ly t h e regu la t i ons concern. T h e eva luat ion was o n some o f

t h e i r opera t iona l areas l i k e solvency, rese rves a n d investment

f o r a p e r i o d o f 5 years(1992 t o 1996) when t h i s law was in force.

T h e e v a l u a t i o ~ ~ was cons idered necessary so as t o assess how well

t h e i n d u s t r y i s do ing faced w i t h d i s t r e s s syndrome wh ich has

been r e p o r t e d as e x i s t i n g in t h e i nsu rance i n d u s t r y .

T h e f i n d i n g s revea led t h a t a l t h o u g h t h e opera to rs k e p t t h e

r e q u i r e d so lvency m a r g i n a n d con t ingency reserve, t h e r e has been

delay in claims sett lement ar ld some times claims a r e n o t p a i d a t

a l l . It was also d iscovered t h a t f o r a l l t h e y e a r s reviewed, t h e

i n s u r e r s cons is tent ly k e p t less rese rves f o r u n e x p i r e d r i s k s ar id

ou ts tand ing claims. Since these rese rves rep resen t t h e i r l i ab i l i t y

t o t h e i nsu red , t h e i r a b i l i t y t o se t t le claims p r o m p t l y wou ld b e

quest ionable. Fur thermore, t h e legal requ i rements t h a t 35% o f

t o ta l assets b e i n v e s t e d in governmen t secur i t ies was g r e a t l y

f lawted. T h i s suggests t h a t t h e gove rnmen t i s den ied t h e h u g e

f u n d s a t t h e disposal o f i nsu rance i n d u s t r y a n d these f u n d s wou ld

v i

most l i ke ly be invested in r i s k i e r projects.

The implications o f these f ind ings a

the pol icy holders whom the law i s meant t o protect has no t received

such protect ion. Th i s cou ld be responsible fo r the delay and

non settlement o f claims which character ize insurance business

in Niger ia and i s weakening the i ndus t r y . Also the reduced investment

in government secur i t y would make it d i f f i cu l t fo r the government

t o invest funds from insure rs i n t o p roduc t i ve sector o f the economy.

Aga in t inves t ing in r i s k i e r pro jects would f u r t h e r jeopardize t he .

in terest o f pol icy ho lders who may loose t he i r moriey .

The informat ion gathered was however used t o make usefu l

recommendations which, i f implemented, would hopeful ly keep t h i s

important subsector o f the f inancial sector o f the economy a l ive

arid well.

vii

TABLE OF CONTENTS

CERTIFICATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENT

ABSTRACT

T A B L E OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1 BACKGROUND TO THE STUDY

1 . 2 STATEMENT OF Tt IE PROBLEM

1 . 3 RESEARCH OBJECTIVES

1 . 4 HYPOTHESIS

1 . 5 RELEVANCE OF THE STUDY

1 . 6 DEFINITION OF TERMS

1 .7 LIMITATIONS OF STUDY

CHAPTER TWO: L ITERATURE REVIEW

2 . 1 PERFORMANCE EVALUTATION

2 . 2 THE NIGERIA INSURANCE MARKET

2 . 3 ORGANlSATlONAL SET UP OF NIGERIA

INSURANCE MARKET

2 . 3 . 1 THE CONTROLLING AUTHORITY

2 . 3 . 2 UNDERWRITERS (INSURERS)

2 . 3 . 3 INTERMEDIARIES OR MIDLEMEN

2 . 3 . 4 CONSUMERS

PAGE

i

i i

i i i

iv

v-vi

vii-ix

2 . 4 ROLE OF INSURANCE

viii

CHAPTER THREE:

3.1

CHAPTER FOUR:

4.1

4.2

CHAPTER FIVE:

RESEARCH METHODOLOGY AREA OF COVERAGE

SOURCES OF D A T A

SAMPLING FRAME

SAMPLE PLAN " " ' " " ' 3 4

SAMPLE Sl ZE DETERMINATION 35

RELIABIL ITY AND V A L I D I T Y TESTS 36 A N A L Y T I C A L TECHNIQUES 36

ANALYSIS AND FINDINGS OF THE

QUESTIONNAIRE. 37

D A T A ANALYSIS AND INTERPRETATION 46 -

PRESENTATION OF TABLES 46

TEST OF HYPOTHESES AND

INTERPRETATION 5 4

DISCUSSION AND IMPLICATION OF

FINDINGS, CONCLU SlON AND

RECOMMENDATION 6 0

DISCUSSION OF RESULTSIFINDINGS 6 i

S T A B I L I T Y OF THE INDUSTRY AND

NATIONAL ECONOMY 6 1-

FINANCIAL INTERMEDIATION 6 3

SAFEGUARD OF THE INSURING

PUBLIC 6 5

CONCLU SlON 66

RECOMMENDATIONS

SUGGESTION FOR FURTHER

STUDIES.

APPENDICES

QUESTlONNAl RE

BALANCE SHEET EXTRACTS

INDUSTRIAL AVERAGES ( )

L I S T OF TABLES AND FIGURES

FIG.

11

Table

11

I1

11

11

T h e Niger ia Insurance Marke t - --

N iger ia Insurance In termediar ies

Role o f S u p e r v i s o r y A u t h o r i t y

L i s t o f Companies Selected

Analys is o f Solvency Marg in

Investrnent in government secur i t ies

Reserve f o r u n e x p i r e d r i s k (Non mar ine)

Reserve f o r u n e x p i r e d r i s k (mar ine)

Ou ts tand ing claims Reserve

Cont ingency Reserve

TEST OF HYPOTHESIS: Solvency M a r g i n

TEST OF HYPOTHESIS: Investment in government secur i t ies

TEST OF HYPOTHESIS: Reserve f o r

u n e x p i r e d r i s k (Non mar ine)

TEST OF HYPOTHESIS: Reserve f o r

u n e x p i r e d r i s k (mar ine)

TEST OF HYPOTHESIS: Reserve f o r

Ou ts tand ing claims

TEST OF HYPOTHESIS: Cont iqency Reserve

CHAPTER ONE

1 .O INTRODUCTION

Performance evaluation i s the assessment o r measurement o f

performance o f employees, management, en t i re organisat ion o r i ndus t r y

against t he goals ear l ie r set. The aim o f such measure i s t o obtain

feedback about effectiveness.

To measure performance in a service organisat ion l ike insurance

i ndus t r y i s o f ten d i f f i cu l t . The d i f f i cu l t y arises from the absence

o f a tangible p roduc t which could be stored and sold later. Insurance

companies r a the r p rov ide f inancial services b y accept ing " r i s k " from

ind iv idua ls and businesses f o r a pren~iurn. In r e t u r n f o r the premium

they ( the insurance companies) pay a cer ta in amount ear l ie r agreed

upon, in the f u t u r e and i f loss occurs, to the insured. It i s necessary,

therefore, t o find a n ef fec t ive and logical means o f measur ing the

performance o f a service organisat ion such as the insurance i ndus t r y .

It i s obvious t ha t the re a re many areas o f an organisation's

perforrnance tha t could be measured. It could be earning, managerial

ef f ic iency, customer satisfaction, y rowth, market share, p roduc t

qua l i t y o r cost control . Each o f these measures the performance

o f an aspect o f a company's operat ion tha t may be o f in terest t o the

user. B u t whatever performance i s be ing assessed, accord ing t o

Szillaggi F. Wallace (1980) the re must be a s tandard o r goal t o which

it would be compared.

Fer t ig e t a l (1972) noted however tha t some o f the performance

measures have p roved not t o be use fu l in service organisations.

An example o f these i s earning. Earn ing computation in a service

organisation,according t o them, has the fol lowing shortcomings which

make it less usefu l as a measure o f performance:

- A number o f insurance costs a re per iod not p roduc t costs.

- Premium collected from insureds a re no t regarded as earn ing

a t the per iod t hey a re received ra ther they a re repor ted

as earned over the l i f e o f the pol icy.

- Commissions t o agents a re regarded as expense a t the

time the pol icy i s sold.

Again, as a resu l t o f th special feature o f insurance o f handl ing

two related but dissimilar l ines o f business a t the same time (F i rs t ,

i nsure rs accumulate premiums collected from pol icy holders from which

claims a re settled when losses occur and secondly, they inves t the

funds t o earn a r e t u r n while it i s held) some o f the ways o ther

indus t r ies l ike manufactur ing i n d u s t r y cou ld be assessed may no t

be useful .

In t h i s s tudy, t he performance o f companies in the insurance

i ndus t r y would be assessed and co rnpad t o t he standards set in the

law regula t ing insurance operations. More specif ical ly, t he i r

perforrnance would be assessed in areas o f solvency, investment and

reserves.

1 .l. - BACKGROUND OF T H E S T U D Y -

' 'A l l losses a r e r e s t o r e d a n d s o r r o w s ad " William Shaloespaar (Sonnet 30)

Serv ice organ isa t ions o f f e r serv ices t o t h e i r c l i en ts

a n d rece ive payment in r e t u r n f o r s u c h serv ices. T h e y d o n o t handle

tang ib le p r o d u c t s l i ke to i l e t soap o r rnotor ca r . T h e i r p r o d u c t s

cannot b e s to red a n d so ld t o customers in a l a te r pe r iod . These

feactures d i s t i n q u i s h serv ice organ isa t ions f rom o t h e r s l i k e t h e

manu fac tu r ing organisat ions. Examples o f serv ice organisat ions i nc lude

law f i rms, c h a r t e r e d account ing f i rms a n d insu rance f i rms. Also,

as ea r l i e r mentioned, d u e t o t h e n a t u r e o f serv ice organisat ions,

t h e usefu lness o f e a r n i n g as a measure o f per for r r~ance i s highly

reduced. Hence t h e need t o assess per formance u s i n g o t h e r measures.

In t h i s research, t h e i nsu rance i n d u s t r y i s t h e case s tudy ,

so it w i l l b e necessary f o r u s t o u n d e r s t a n d t h e n a t u r e o f t h e i r serv ices.

T h e bus iness o f i nsu rance i s b e s t desc r ibed by a b ib l i ca l

i n junc t i on in Galat ions 6: 2 wh ich says " Bear y e one anothers l burden1' .

Vanghan a n d E l l i o t t (1978) desc r ibed it as a n i n t r i ca te mechanism h a v i n g

t w o fundamental charac ter is t ics :

- T r a n s f e r i n g o r s h i f t i n g r i s k f rom one i n d i v i d u a l t o

a g r o u p .

- Shar ing losses, o n some equ i tab le basis, by a l l members

o f t h e g r o u p .

O n i n d i v i d u a l basis, t h e y s ta ted t h a t it i s a n "econmic dev ice"

whereby t h e i nd i v idua l subs t i t u tes a small ce r ta in cost ( t h e premium)

f o r a la rge u n c e r t a i n f inancia l loss ( t h e con t ingency i n s u r e d aga ins t )

T h e p r i m a r y func t i on . i nsu rance pe r fo rms i s t h e c rea t i on

o f secu r i t y b y p r o v i d i n g p ro tec t i on . T h e i n d i v i d u a l o r g r o u p i s

p r o v i d e d freedom f rom t h e b u r d e n o f u n c e r t a i n t y .

I nsu rance bus iness i s b r o a d l y g r o u p e d i n t o two classes, t he

l i f e assurance bus iness a n d t h e genera l business. T h e l i f e assurance

bus iness invo lves t h e p ro tec t i on aga ins t losses r e s u l t i n g f rom acc ident

o r loss o f l i fe . It cou ld b e i n d i v i d u a l o r g r o u p l i fe . T h e second

class o f i nsu rance business, t h e genera l bus iness covers e v e r y

o t h e r area ou ts ide l i fe . These two classes o f bus iness a r e d i s t i n c t

in ways o t h e r t h a n t h e one s ta ted above. T h e premium col lected

f rom l i f e bus iness a r e h e l d f o r l ong usua l l y o v e r a yea r a n d t h u s

cou ld b e i nves ted o v e r a long term. On t h e o t h e r hand, t h e genera l

bus iness c o n t r a c t i s usua l l y annua l t h u s l iab i l i t ies r e s u l t i n g f rom

it a r e usua l l y d i scha rged w i t h i n one year . T h i s presupposes t h a t

premium f rom such bus iness in t h e c u r r e n t yea r cannot b e i nves ted

o v e r a l o r y te rm.

In Niger ia insurance bus iness has been rece iv ing increased

a t ten t i on f rom t h e government . T h i s i s mani fested in t h e severa l

promulgations r e g u l a t i n g the ac t i v i t i es o f t h i s sector . tn 1976 a

decree was promulgated r e g u l a t i n g t h e ac t i v i t i es o f t h i s sec tor .

In 1991 a decree was promulgated w h i c h expanded a n d repealed

t h e 1976 insu rance decree. Now t h e r e i s another i nsu rance decree

o f 1997 wh ich f u r t h e r en la rged a n d repealed t h e 1991 decree. Ear l ie r

t h a n 1976, leg is la t ion o n the sec tor was n o t o f major concern, but

since 1976 each new leg is la t ion has become more a n d more s t r i n g e n t .

Why has government d i r e c t e d a t t e n t i o n o n t h e i nsu rance sub-sector?

The in teres t o r increased a t tent ion according t o Vauyharl

E El l iot t (1978, p.132) i s because insurance l i ke bank ing i s "vested

in t l ie pub l i c interest ." T h i s means tha t insurance a f fec ts many

people and l o p ro tec t pub l i c welfare therefore, government needs

t o regulate t h e i r act iv i t ies. I r l Niger ia the case o f d is t ress now

p lagu ing the bank ing i n d u s t r y i s a f u r t h e r pointer t o the need

for regu la t ion t o p reven t d is t ress ill the insurance i l l d u s t r y .

Secondly, r e g u l a t i o ~ i in i ~ i s u r a nce i s necessary t o p reve l l t

excessive competition. In Niyer ia t h e ra te o f g r o w t h o f insurance

f i rms and brokerage f i rms has been v e r y irnpresslve . The number

o f insurance cotnpanies rose f r o ~ n 109 in 1990 t o 145 in 1994. The

impl imi ton o f t h i s fo r the i n d u s t r y i s tha t competit ion has become

v e r y severe g i v i n g r ise to what Ogunkanrni (1977,P.28)described as

"pract ices which are unwholeso~ne". The danger in too much conlpetitioti

in the i l ~su ra t i ce i n d u s t r y i s the j%ssiUilify tha t while v y i n g fo r business,

cornpatlies may under estimate fu tu re losses and as a resu l t fail.

T h i r d l y , t he insurance cont rac t i s v e r y complicated in nature

tnakiny it d i f f i c u l t f o r the insu red to understand. Leyls lat ion ensures

that contracts o f fe red t o the p u b l i c a re Cair. Omodu (1977 p. 28) stated

that ! ' in Niger ia "it wi l l n o t b e a n exayerat ion t o say tha t less

than te l l perce l l t o f the populat ion know what insurance i s a l l about."

The need f o r pro tec t ion o f the pub l i c i s therefore more.

Another impor tant reason f o r regu la t ion i s the solvency quest ion.

insurance p r o d u c t i s a prornise. In r e t u r n f o r t h e premium, t h e

company pronl ises t o pay t h e i n s u r e d a spec i f ied sum u p o n t h e occurence

o f t h e even t i n s u r e d against . T h e a b i l i t y o f t h e insurance company

t o fulfill t h i s prornise t o t h e i n s u r e d depends o n i t s f inanc ia l solvency.

T h i s fact accounted f o r t he inc lus ion in t h e 1991 decree o n insurance

a prov is ion cal led t h e solvency margin. T h i s i s aimed a t s t reng then ing

the posi t ion o f insurance f i rms and the reby improve t h e i r ab i l i t y t o set t le

claims. Section 20 of 1991 insurance decree sub section (1) st ipulates

tha t eve ry i l l s u r e r i n general business shal l rr~air l tain a so l ve r~cy margin,

be ing the excess o f the value o f adlnissible assets i n Niger ia o v e r i t s

l iabi l i t ies ill Niger ia consist ing o f : -

(a) reserve f o r unexp i red r i sk ,

( b ) reserves f o r ou ts tand ing claims, a n d

(c ) reserves f o r claims i n c u r r e d but no t y e t repor ted.

Section 20(2) requ i tes tha t t h e solvency marg in shal l no t b e less

than 1 5 h f g m s premium irlcome less the re insurance premium p a i d o u t

d u r i n g the immediately preced ing account ing year. Section 20(2) excludes

rnoneys owed b y po l icy holders, b r o k e r s o r agents b y way o f premium

due but no t received b y t h e i n s u r e r from t h e l i s t o f admissible assets.

Ve ry s t i f f penalt ies await de fau l te rs o f t h i s prov is ion . Section 20(7) stipulates

tha t arr insurer 's l icence shal l be carrcelled f o r fa i lu re t o make up solvency

marg in w i th in t h e s t ipu la ted time per iod.

T h i s legal p rov is ion i s aimed a t e n s u r i n g t h a t insurance companies

a r e in a posi t ion t o set t le claims w i th minimum delay t o safeguard t h e

i n s u r i n g pub l i c and maintain confidence which i s fast dw ind l i ng bn t h e

insurance sub-sector.

O n the issue o f investment as a n impor tant reason why government

should regu la te insurance operat ion F e r t i g e t a l (1972) had t h i s t o say

" the investment side o f t he insurance business i s so important t h a t many

fear t h a t t he f inancia l s t r e n g t h o f insurance companies may become g rea te r

t han i s socially desirable!' The insurance i n d u s t r y p laysve ry major ro le

as f inancia l in termediar ies b y making funds avai lable f o r investment b o t h

in the capi ta l a n d money market c , In sorne cases too they a r e i nvo lved

in lend ing . As a r e s u l t o f t h e h u g e sums avai lable t o them, gove rnmen t

leg is la t ion t e n d s t o d i r e c t i t i ves t l r~er l t t o s o u n d a n d socia l ly des i rab le sec tors

f o r t h e b e s t i n t e r e s t o f t h e economy. T h i s o f t e n run c o n t r a r y t o t h e

des i re o f t h e i nsu rance f i r m s t h a t p r e f e r h i g h e r p a y i n g but o f t e n r i s k i e r

inves tments .

T h e i nsu rance decree o f 1991 Sect. 21 ( 1 ) p r o v i d e d t h a t e v e r y i n s u r e r

t r a n s a c t i n g bus iness in N ige r ia sha l l i n v e s t in N ige r ia assets equ i va len t

t o t h e amount o f f u n d s shown in t h e balance sheet a n d revenue account

o f t h e i n s u r e r . Sect 21 ( 2 ) a u t h o r i s e d areas t h e y c o u l d i n v e s t in a r e as

fo l lowing : -

Secu r i t i es spec i f ied u n d e r t h e t r u s t e e i nves tmen t ac t ;

Share in o r o t h e r secu r i t i es o f a society r e g i s t e r e d u n d e r

a law r e l a t i n g t o co-opera t ive societies;

Loans t o building societ ies a p p r o v e d b y t h e commission;

Loan o n rea l p r o p e r t y , mach ine ry a n d p l a n t in Niger ia .

Loan o n l i f e po l ic ies w i t h i n t h e i r s u r r e n d e r values;

Cash depos i ts in o r b i l l s o f exchange accepted b y l i censed

banks ; a n d

S u c h irwestrneri ts as rnay b e app roved .

Subsect ion 21 (3 ) f u r t h e r spec i f ied t h a t n o t less t h a n 35% o f t h e i n s u r e r ' s

t o ta l assets sha l l b e i n v e s t e d in gove rnmen t secur i t ies . Sect 21 ( 4 )

s t i pu la tes t h a t n o i n s u r e r sha l l :

( a ) in respec t o f non- l i fe bus ienss i n v e s t more t h a n 25% o f i t s

assets in rea l p r o p e r t y ; o r

( b ) in respect o f i t s l i f e i nsu rance business, i n v e s t more t h a n

35% o f i t s assets in rea l p r o p e r t y .

The foregoing prov is ions a re aimed a t d i rec t i ng the insurance

funds t o pre fer red sectors o f t he economy. Also it i s designed t o cu r ta i l

investment in v e r y r i s k y ven tu res t h a t cou ld resu l t in t h e collapse

o f insurance f i rms. A n important p rov i s ion in t h e decree i s t he seal ing

placed o n general busienss funds tha t can b e invested in long term

secur i t ies a n d real p r o p e r t y . T h i s w i l l f u r t h e r improve l i q u i d i t y as

claims can be set t led more read i ly a n d the reby ensure t h a t insurance

companies remain solvent.

Another c ruc ia l area o f insurance operat ion tha t government

legis lat ion i s necessary t o con t ro l i s reserves. As mentioned ear l ier ,

insurance i n d u s t r y operates in a un ique way b y col lect ing in advance

for a p r o d u c t t h a t w i l l be de l ivered in the fu tu re . It i s v e r y necessary

there fore t h a t t he re shou ld b e some recogn i t ion o f the ob l iga t ion t o

po l icy ho lders b y p r o v i d i n g f o r unearned premium. Insurance business

can on ly operate soundly o n t h e advance premium basis b y p r o v i d i n g

f o r t h e i r f u t u r e obl igations. T h i s p rov i s ion i s made b y the c reat ion

o f reserves. Such reserves a r e l iabi l i t ies wh ich represent the present

value o f t h e i r obl igat ions t o po l icy holders.

Regulat ion o f reserves i s a c r i t i ca l area in insurance superv is ion

and t h a t i s w h y the government in each insurance law s t ipu la tes the

na tu re a n d amount o f reserves t h a t corr~panies must maintain. Reserves

a re v e r y i ~ n p o r t a n t in showing the f inancia l s tab i l i t y a n d solvency

o f the f i rms as we recognise tha t they a re t r u e l iabi l i t ies. Accord ing

t o l r u k w u (1997) reserves represent a n i nsu re r ' s major o r p r i n c i p a l

l iabi l i t ies. They do no t represent f u n d s set aside t o meet up

contigencies. They a re actual measurement o f a company's l iabi l i t ies

t o pol icy ho lders and claims tha t must be o f f s t b y assets. Unders ta t i ng

The foregoing prov is ions a re aimed a t d i rec t i ng the insurance

funds t o pre fer red sectors o f t he economy. Also it i s designed t o c u r t a i l

investment in v e r y r i s k y ven tu res t h a t could resu l t in t h e collapse

o f insurance f i rms. A n impor tant p rov i s ion in t h e decree i s t he seal ing

placed o n general busienss funds tha t can be invested in long term

secur i t ies a n d real p r o p e r t y . T h i s w i l l f u r t h e r improve l i q u i d i t y as

clairns can be set t led more read i ly a n d the reby ensure t h a t insurance

companies remain solvent.

Another c ruc ia l area o f insurance opera t ion t h a t government

legis lat ion i s necessary t o con t ro l i s reserves. As ment ioned ear l ier ,

insurance i n d u s t r y operates in a un ique way b y col lect ing in advance

fo r a p r o d u c t t h a t w i l l be de l ivered in the fu tu re . It i s v e r y necessary

there fore t h a t t he re shou ld be some recogn i t ion o f the ob l iga t ion t o

po l icy ho lders b y p r o v i d i n g fo r unearned premium. Insurance business

can on ly operate soundly o n the advance premium basis b y p r o v i d i n g

fo r t h e i r f u t u r e obl igations. T h i s p rov i s ion i s made b y the c reat ion

o f reserves. Such reserves a r e l iabi l i t ies which represent the present

value o f t h e i r obl igat ions t o po l icy holders.

Regulat ion o f reserves i s a c r i t i ca l area in insurance superv is ion

a n d t h a t i s why the government in each insurance law s t ipu la tes t h e

na tu re a n d amount o f reserves t h a t corrlpanies must maintain. Reserves

a re v e r y impor tant in showing the f inancia l s tab i l i t y a n d solvency

o f the f i rms as we recognise tha t t hey a re t r u e l iabi l i t ies. Accord ing

t o l r u k w u (1997) reserves represent a n i nsu re r ' s major o r p r i n c i p a l

l iabi l i t ies. They do no t represent f u n d s set aside t o meet up

contigencies. They a r e actual measurement o f a company's l iabi l i t ies

t o po l icy ho lders a n d clairns tha t must be o f f s t b y assets. Unders ta t i ng

reserves imply that the net worth of t he company is overstated.

In Nigeria, insurance decree No. 58 of 1991 in section 1 9 ( 1 ) outlined

the types of reserve which every insurer must maintain for each class

of insurance business.

(a ) reserves for unexpired r isks

( b ) reserves for outstanding claims; and

(c) contingency reserves to cover fluctuations in securit ies

and variatiorls in statistical estimates.

Sect io~l 19(2) specified t he magnitude of reserves tha t should

be maintained in general busitless.

reserves for unexpired r isk should be credited with 45%

of tlle total premium and for marine cargo 25% of total

pren~iurn . reserves for outstanding claims should be credited with

amount equivalent to all outstanding claims plus 10% of

estimated figure of claims incured but not yet reported

a s a t the end of the previous year .

contingency reserves should be credited with 3% of total

premium o r 209, of net profit which ever is grea te r and

th i s should accumulate until it reaches the rrlinirnurn paid

up capital o r 50% of net premiums which eve r is grea te r .

Section 19(3) provides for reserves that should be maintained

for life business:

General reserve fund should be credited with an amount

equal to the net liabilities on policies in force a t the time

o f t h e a c t u r i a l valuat ion.

( t i ) Cont ingency rese rves shou ld b e c r e d i t e d w i t h 1% o f t h e g r o s s

premiums o r 10% o f p r o f i t s w h i c h e v e r i s g r e a t e r a n d t h e r e s e r v e

shou ld accumulate until it reaches t h e minimum pa id -up capi ta l .

These p rov i s ions may seem h a r d o n p rac t i one rs but t h e y a r e

necessary i f t h e i n d u s t r y m u s t s u r v i v e .

These legal p rov i s ions o n solvency, investment a n d rese rves

a r e aimed a t e n s u r i n g t h a t t h e i n d u s t r y operateson sound f inanc ia l

. s tand ing. S u c h soundness i s necessary i f claims must b e se t t l ed

read i l y as t h e y o c c u r to- increase t h e conf idence o f t h e p u b l i c o n

insurance operat ions. Also, t h e f inanc ia l good hea l th o f t h e i n d u s t r y

w i l l ensu re su rv i va l , g r o w t h a n d p r o f i t a b i l i t y f o r t h e shareholders.

A l l these w i l l lead t o economic advancement a n d g r o w t h o f t h e nat ion.

It i s aga ins t t h i s b a c k g r o u n d t h a t t h i s research i s c a r r i e d o u t t o

assess how t h e i n d u s t r y has been a d h e r i n g t o these regu la t ions .

Adherance would ind ica te t h a t t h e nat ion 's aims a n d 'aspirat ions a r e

b e i n g met whi le n o n adherance would ind ica te danger a n d ca l l f o r

act ion.

STATEMENT OF THE PROBLEM

T h e insu rance i n d u s t r y holds a l o t o f f u n d s accumulated f rom

premium col lected f rom i t s va r ious classes o f businesses. These

f u n d s enable them p e r f o r m v i t a l ro les in t h e economy such as f inanc ia l

in termedia t ion a n d fund mobi l izst ion. O t h e r func t i ons wh ich t h e y

per form include prov is ion o f condusive environment f o r business

b y g i v i n g protect ion against uncer ta in t ies t o the insured. These

roles are v e r y cruc ia l f o r the people, businesses and the nat ional

economy in general.

T o ensure t ha t the i n d u s t r y operate ef fect ively and t o maintain

adequate control, governrnent has repealed and expanded laws govern ing

the operat ion o f insurance in Niger ia .

These laws were aimed a t check ing problems o f the insurance i n d u s t r y

which include among others : -

* The i n f l ux o f companies in to the insurance i n d u s t r y resu l t i ng

in v e r y s t i f f competition and g i v i n g r i se t o unwholesorne practices.

* The temptation o f i n su re r s t o invest in h i g h r i sk , h i g h y i e l d

pro jects w i t h the huge funds a t t he i r disposal so as t o make

more income,

* Delay and o f ten non settlement o f clairus when losses occur

and

* Financial d istress.

These problem would obviously h inder the ab i l i t y o f the insurance

i ndus t r y t o operate ef fecient ly and ef fec t ive ly .

The government legislat ions' aims and purposes a re laudable,

but the problerr~ i s the adherance o f companies in the insurance i n d u s t r y

t o the prov is ions o f the law.

Th i s problem o f adherence i s v e r y cruc ia l because adherence

t o the prov is ions o f the law would make f o r a stable and f inancial ly

s t rong i n d u s t r y which would be able t o per form i t s roles towards

the pol icy holders, the shareholders and the national economy ef fect ive ly

a n d e f f i c i e n t l y .

T h e s t u d y t h e r e f o r e assessed t h e per formance o f i n s u r e r s in

some o f t h e opera t iona l areas o f so l ve r~cy , investment a n d r e s e r v e

t o determine i f t h e legal p rov i s ions a r e adhered to.

RESEARCH OBJECTIVES

T h e yovernrr ler l t i s now more po ised t o make t h e i nsu rance i n d u s t r y

operate more sound ly . T h i s i s because organ isa t ions in insu rance

i n d u s t r y o f fe r f inanc ia l serv ices v i t a l f o r eeonomic g r o w t h a n d development

o f a n y nat ion .

In Niger ia, t h e insurance i n d u s t r y has made remarkable co r> t r i bu t i on

as investment in termediar ies i n cap i ta l fo rmat ion a n d investrnent markets.

T h r o u g h t h e i r operat ion, t h e y have increased t h e size o f i nves t i b le

f u n d s avai lable a n d p r o v i d e d condus ive atmophere f o r business.

A.K. Oniw inde (1996 p.7) put it more succ in t l y when he desc r ibed

insurance bus iness as " T h e concept, ph i losophy a n d techn ique o f

g e ~ w r a t i n g shor t , niediurn a n d long te rm sav ings wh ich a r e subsequent ly

t rans fo rmed i n t o l ong term investment t h a t has he lped some o rgan ised

busiensses to expand a n d t o c reate new companies, wh ich has enab led

these o rgan isa t i on t o o f f e r employment t o t h e masses.

It i s because o f these impor tan t ro les wh ich the i nsu rance i n d u s t r y

pe r fo rms t h a t has necessi tated a n eva luat ion o r assessment o f t h e i r

opera t ion in areas o f solvency, investrnent a n d rese rves aga ins t

t h e p rov i s ions o f t h e law in these areas.

T h e evaluat ion, i t i s IVJped, w i l l r evea l t h e prac t icesof f i rms

in t h e i n d u s t r y in comply ing w i t h these c r u c i a l legal p rov i s ions .

More speci f ical ly , t h e research i s expected to :

- Show i f insurance corripanies ab ide b y t h e legal requ i remen t

011 solvency wh ich i s des igned t o ensu re t h e i r s u r v i v a l

a n d hea l thy operat ion.

- Ind ica te whether t h e investmer i t p a t t e r n o f i nsu rance

companies a r e in t u n e w i t h t h e gu ide l ine 011 investment

as p r o v i d e d ill t h e law. T h i s i s because t h e p r o v i s i o n s

a r e i n tended t o rria k e therri p e r f o r m p r o p e r l y t h e i r f inanc ia l

i r i terrr iediat ion a n d fund mobi l izat ion func t ions .

- Reveal whether o r n o t i nsu rance companies rnaintairi t h e

s t a t u t o r y rese rves as marldated b y t h e law a n d wh ich

i s i n tended t o sa feguard t h e i n t e r e s t o f t h e i n s u r i n g

. pub l i c .

- Draw t h e a t ten t i on o f t h e s u p e r v i s o r y body t o t h e need

t o cor is tant ly c a r r y o u t per formance eva luat ion o f i n d u s t r i e s

t h e y oversee so as l o i n i t i a te co r rec t i ve act ior i e a r l y enough

where dev ia t ions a r e found. Such e a r l y c o r r e c t i v e act ior i

w i l l fo res ta l d i s t ress ar id t h e r e b y ensu re t h e g r o w t h a n d

developrrient o f t h e nat ional economy.

1.4 tIY POTHESIS

Hypothe& a r e sc ient i f i c p ropos i t i ons w h ~ c h enable in ference

t o be d r a w n o n a n u n k n o w n popu la t i on paramter . Nwabuokei (1986

p.241) de f i ned i t as a statement o r assumpt ion about ail u r ~ k n o w r i

14

popu la t ion parameter. Such statements o r assumptions m i g h t b e

t r u e o r false hence t h e need t o t es t them u s i n g in fo rmat ion col lected

f rom the populat ion.

The hypotheses wh ich would be tes ted in t h i s research a r e

as follows:

Companies in t h e insurance i n d u s t r y mainta in t he solvency m a r g i n

as s t ipu la ted b y t h e law.

Insurance f i rms obey government regu la t ion o n investment in

government secur i t ies.

I n s u r e r s mainta in rese rve f o r u n e x p i r e d r i s k as p r o v i d e d in

the law.

Insurance companies keep the legal p rov i s ion o n rese rve f o r

ou ts tand ing claims.

I n s u r e r s r r~a in ta in adequate cont ingency reserve as p r o v i d e d

in t h e law.

1 . 5 IIELEVANCE OF THE S - ~ U D Y

The i n f l u x o f companies i n t o t h e insurance i n d u s t r y between

1990 a n d 1996 has g i v e n r ise t o increased competi t ion a n d consequent ly

a f fec t per formance. Also, insurance cornpanies p r o v i d e similar serv ices

a n d t h i s means t h a t o n l y t he fit w i l l s u r v i v e .

T h i s s t u d y i s re levant because o u r s i s a f ree economy excep t

f o r a few monopoly g i v e n t o Nat ional I nsu rance Corpora t ion (NICON)

a n d N iger ian Reinsurance c o r p ~ r a t i o n in the i nsu rance i n d u s t r y .

There fore g i v e n t h e high compet i t ive env i ronment t h a t companies

in t h e ~ n d u s t r y a r e ope ra t i ng in a n d g i v e n ' also the fac t t h a t t h e

pro f i t ab i l i t y b y f l ou t i ng government regulat ions. As ea r l i e r

s tated ea rn ing i s n o t a good measure o f performance f o r a serv ice

orgar~ isa t ion , hence the choice o f compliance t o government regulat ion;

- I lowevcr, ea rn ing cannot be i y nored co~nplete ly because for companies

t o cornply w i th the regu la t ion they need t o e a r n well so as t o

be liquid, solvent and p rov ide the reserves requ i red. Earn ing

w i l l also p rov ide more funds for investment and investment

also increases earn ing. B u t i t shou ld be recal led t h a t t h e regulat ions

have been made t o p rov ide s tab i l i t y i n the i n d u s t r y as well as

pro jec t the pol icy holders.

It i s there fore l lecessary t o ascerta in the extei l t ,companies have

been comply ing w i t h the regulat ions a n d consequent ly :

1. Have some ins igh t i n to how stable t h e companies a n d t h e e n t i r e

i n d u s t r y have been t o enable them p lay t h e expected ro les in

the na-tional economy. T h i s i s especial ly use fu l now t h a t the

d is t ress epidemic has spread t o t h e insurance i n d u s t r y . A

recent pub l ica t ion in a da i ly newspaper Th isday (Aug.26,1997)

repo r ted t h a t 28 insurance companies a re terminal ly d is t ressed

a n d 49 o the rs a r e in var ious stages o f f inancia l d is t ress .

2. Assess whether the companies a re in fact f inancia l ly s t r o n g

t o meet the pol icy ho lders need in terms o f claim sett lement.

3 . Know if the companies a re in good posi t ion t o meet t h e shareholders

d i v idend expectat ion.

4. Enable government a n d superv i so ry author i t ies check on t h e

effect iveness o f t he e x i s t i n g regu la t ions a n d the reby determine

when a rev iew o f the regulat ions i s necessary.

5. Make the s tud ies avai lable t o s tudents a n d researchers for

f u r t h e r studies.

1 .G DEFINITION O F TERMS

It w i l l b e necessary here t o g i v e operat ional de f in i t ion t o some

terms tha t w i l l b e used o f ten in t h i s s t u d y .

INSURANCE CONTRACT: It i s a legal document wh ich descr ibes

. insu re rs promises. It def ines the circumstances u n d e r wh ich the

i n s u r e r w i l l pay arid the amount t o be paid.

INSURANCE POLICY: It i s t he cont rac tua l arrangement f o r sha r ing

o f losses a n d ho lders o f such cont rac t a re cal led po l icy holders.

l NSU RER : Corporat ions, p a r t n e r s h i p o r syndicates o f i nd i v idua l

underwr i t e rs .

PREMIUM: It i s the p r o d u c t o f insurance ra te a n d the number

o f u n i t s o f exposure. The pol icy ho lders pay t h i s t o the i n s u r e r s

a n d o n tha t basis, the i n s u r e r share in t h e i r losses.

ADMISSIBLE ASSETS: They a re asset wh ich a re read i ly conver t ib le

i l l t o cash a n d exc lude assets l i ke suppl ies, f u r n i t u r e a n d f i x tu res ,

office rnachines a n d equipment arid premium past due n ine ty days

F INANCIAL SOLVENCY: A b i l i t y o f t he i n s u r e r t o rrieet up clairrl

settlement ob l iga t ion o f po l icy ho lders as they mature.

INVESTMENTS: It i s the corrlrnitmerit o f ce r ta in present values f o r

the poss ib i l i t y o f rece iv ing unce r ta in f u t u r e values.

RESERVES: They a re deb ts t o po l icy ho lders and t h e main l iabi l i t ies

o f i nsu re rs .

INSURANCE FUNDS: It comprises Reserve f o r u n e x p i r e d r i sk ,

ou ts tand ing claims reserve and incu r red but not ye t repo r ted ( I B N R ) ~ .

1.7 L IMITATIONS OF THE STUDY

The s t u d y w i l l be conducted u s i n g on ly insurance companies

quoted in the f i r s t t i e r o f the Niger ian Stock Exchange. T h i s i s done

t o obta in accounts p repared in a s tandard format, for t he analysis,

as r e q u i r e d b y the N iger ia Stock Fxchange.

Also, due t o time corlstraint, on l y a sample o f s ix o u t o f t h e

15 quoted companies, as a t 1996 were examined. It i s considered

t h a t the use o f about 40% sample i s f a i r l y representa t ive o f t he popu la t ion

a n d general isat ion would b e made us ing the sample. This, t o some,

may seem inadequate but i f we real ise t h a t t he legal p rov is ions a f fec t

a l l companies in t h e same way a n d t h a t most companies o f f e r similar

services, t h e cjeneralisation may be able t o a t t r a c k c red ib i l i t y .

Another l ini i tat ior i i s the fact t h a t on l y quant i f iab le p rov i s ions

o f the law t h a t could b e tes ted a re used in t h e analysis. Thus,

compliance w i t h investrnerlt in real p r o p e r t y o f l i fe funds a n d non

l i fe funds which companies d o no t show separately in the annua l

repo r t s cannot be tested. Also not to be tes ted a re investments in

o the r areas except for i r lvestr r~ent in government secur i t ies.

Also, o the r par t ic ipants in the i n d u s t r y l i ke the b roke rs , re insu re rs

and loss ad jus ters a r e n o t exarnined as non o f these i s quoted in

Finally, fewer than the six samples a re used i n some o f the

cases where it was dif f icult Po obtain information from al l the companies.

CHAPTER TWO-

REVIEW 01: RELETATED LITERATURE

In th i s chapter, some works, iaeas and cont r ibut ions o f o thers

shall be reviewed. The review i s expected t o help us understand rnore

clear ly t he issues in th is discuss.

It i s per t inen t t o note however that there has not beer) any research

carr ied ou t on th is topic. The focus therefore shall be on works and

ideas o f o thers in areas related t o the topic.

2 . 1 I'ERFOKMANCE EVALUATION

On the rnain topic, perrorrriarlce evaluation, Kast and Rosenweig

( 1979 ) descr ibed oryanisat ion performance as tha t which resu l ts from

the aggregat ion o f ind iv idual and g roup e f fo r ts t o achieve relevant

goals. They observed tha t rrleasuring and evalua.ting result: i s important

in determining performance. According to them, indicators o f performance

include share o f market, net p ro f i t , p roduc t i v i t y , customer satisfaction,

long r u n viabil i ty, arnong others.

On dimensions o f organisational performance they ident i f ied three,

effectiveness, ef f ic iency and par t ic ipant satisfaction. Effectiveness,

they explained, concerns accomplishment o f exp l ic i t and impl ic i t goals,

effecierlcy re fe rs t o rat io o f ou tpu t t o i n p u t o r benef i t to cost while

par t ic ipant satisfaction i s achieved b y be ing bo th ef f ic ient and effective.

The purpose o f performance evaluation they noted i s improvement

in capabil i ty which resu l ts in long r u n v iab i l i ty . Such v iab i l i ty wi l l

depend on b o t h shor t - run achievelr~ents and potent ia l t o sustain and

, . , . s . ,

importance i n formal per forma~ice appraisal is ident i f icat ion o f appropr iate

cr i ter ia . Such ident i f icat ion wi l l make resul t measurement relat ively

objective and appraisal as well as control s t ra igh t forward. In the i r

view, cont ro l o f overal l s t ra tegy car1 re ly on relat ively subject ive

appraisal o f organisational perforniance b u t control o f operation can

re ly or1 relat ively objective c r i te r ia and automatic adjustments based

on a comparison o f actual and expected resul ts.

Finally in the i r contr ibut ion, they advised that in designing control

systems at tent ion should be focused on h igh-p r io r i t y objectives regardless

o f the degree o f d i f f i cu l t y i r ~ measuring and evaluat ing performance.

In the view o f Olawale, ( 1997 ) it i s the most single device available

t o organisatiorls fo r sett ing and obtaining goals, and these goals relate

t o " resu l ts o f operation" which could be o f a market o r an i ndus t r y .

THE NIGERIA INSURANCE MARKET

Having t hus examined what performance evaluation is and i t s

purposes, we shall now look in to the Nigeria insurance market. Gordon

and Dickson ( 1981 ) said t ha t insurance market i s a market fo r the

buy ing and sell ing o f insurances. According to them there i s no

single place i n a country , town o r c i t y where buyers, sel lers and

middle men meet t o t ransact insurance. A n exception, according

t o them, be ing Liodys' and the one i n New York, United States o f

America. They explained tha t insurance business could be car r ied

ou t anywhere and at anytime where it i s convinient t o the par t ies

concerned. They also, went f u r t he r t o say that insurance market

l i k r any o lhc r tnarkei has s ~ l l c r s , huyc.rs ar~cl rnidtllemen; the s ~ l l e r s

O n t h e n a t u r e o f N i y e r i a i nsu rance market , Oniodu (1997) s ta ted t h a t

t h e N ige r ia i nsu rance m a r k e t i s n o t located a t a n y spec i f i c p lace b u t takes

place e v e r y where t h e r e i s need f o r i nsu rance . l i e no ted t h e fo l lwo ing

as t h e make up o f t l re N iger ia i nsu rance marke t , "agent , t h e b r o k e r s a n d

t h e u n d e r w r i t e r s ( t h a t is, t h e i nsu rance companies) a n d re insu rance

companies .I1

2.3 OKGANISATIONAL SET-UP OF NIGERIA INSURANCE MARKET

T h e insu rance y e a r book i den t i f i ed t h e fo l lowing as compr i s ing

t h e organ isa t iona l se t up o f N i g e r i a n i nsu rance marke t :

1. T h e c o n t r o l l i n g au tho r i t i es

2. Federa l gove rnmen t co rpo ra t i ons a n d p r i v a t e i nsu rance companies

( u n d e r w r i t e r s )

3. I n te rmed ia r i es

2.3.1 Tt iE CONTROLLING A U T I i O R I T Y

M a r k I? Greene (1977) o b s e r v e d t h a t l i k e a n y o t h e r bus iness a c t i v i t y

u n d e r t a k e n in a n economy, gove rnmen t has commonly la id d o w n r u l e s

g o v e r n i n g t h e conduc t o f i nsu rance bus iness . T h e i nsu rance bus iness

however, rece i ved g r e a t e r a t t e n t i o n f rom gove rnmen t wtr ict i has a lso

ac t i ve l y engaged in insu rance business. Government in te res t , he noted,

has s t imu la ted a n d cha l lenged ttre i nsu rance i n d u s t r y t o d o b e t t e r .

He went f u r t h e r t o i d e n t i f y t h e fo l lowing as reasons f o r w h i c h gove rnmen t

regu la tes t h e ope ra t i on o f i nsu rance bus iness .

are the insurance companies o r underwr i te rs while the buye rs a re

the general public, i ndus t r y and commerce and the middlemen a re

the b roke rs and agents. They presented a diagram o f insurance

market a n d below i s a n adaptat ion o f the insurance lAarket f o r Nigeria.

F igure 2.1 T l l E NIGERIA INSURANCE MARKET --

The b y e r s - - (The Insured) I

I n d u s t r y

The Sellers

The intermediar ies I nsu re r s Reinsurers -1

The pub l i c

Co-opera t i ve l nsurance

\ /

Companies

L-++--

Self insurance (1--

Mutual Insurance (C..p..i..-1-1

The State k SOURCE: Adapted from in t roduc t ion t o insurance p . 7 1 2 .

1. Insurance serv ices a re pa id f o r in advance a n d their benef i ts a re

reaped in the fu tu re , sometimes, b y a person o the r t h a n t h e

i n s u r e d who i s no t t he re t o p ro tec t sel f - in terest . T h e management

o f the po l icy holders money which usua l ly i nvo l vesve ry huge sums

lends i t se l f t o regu la t ion as the re may be the temptat ion b y the

unscrupu lous t o misuse such funds. Regulat ion t r i e s t o p r o v i d e

yuasantee t h a t t he insurance companies would d ischarge t h e i r

obl igat ions when loss occurs and t h a t i f t hey fail, just ice can be ,

I ,

obtained.

* & * 8

2 . The cont rac t o f insurance i s complex a n d few lay people can f u l l y

unders tand it especial ly t he i l l i t r a t e ones. I f al lowed therefore,

t he i n s u r e r s because o f t h e i r knowledge cou ld obta in a n u n f a i r

advantage. T h i s fact i s f u r t h e r bu t t ressed b y the number o f

cases i n v o l v i n g t h e misunders tand ing a r i s i n g f rom the i n te rp re ta t i on

o f cont rac tua l word ing o f policies.

3 . Sirice the cost o f insurance a r e u n k n o w n a t t he time premiums

a re charged, w i thout regu la t ion t h e r e could be the temptat ion

t o u n d e r c h a r y e o r overcharge b y i ~ r s u r e d . Overcharg ing a n d

undercharg ing are b o t h disadvantageous t h u s regu la t ion o f p r i c i n g

i s v e r y desirable.

4. Regulat ion helps t o check abuses in the business. T h i s cou ld

be abuse o f power o r v io lat ion o f pub l i c t r u s t . Such abuses inc lude

fa i l u re b y i n s u r e r s t o l i ve up t o cont rac t provis ions, d raw ing

up misleading contracts, improper investment o f pol icy holders '

funds, false advert is i r lg , among o thers .

On t h e issue, Vanghan e t a l (1978) jus t i f ied government 's con t ro l

o f insurance b y no t i ng tha t i t i s impor tant t o pro tec t t he people. They

went f u r t he r t o say tha t insurance l ike bank ing i s vested in pub l i c

interest and tha t insurance p roduc t i s a promise which t he ab i l i t y o f

the insurance company t o keep i s based on i t s f inancial solvency. They

rnaintained that publ ic welfare requi res tha t solvency be regulated,

therefore, government control i s necessary t o "promote the welfare

o f the pub l i c b y maintaining sound insurance companies who o f f e r fa i r

contracts a t fa i r prices."

In h is cont r ibut ion Ornodu . (1997) stated that prior t o 1976 in Nigeria,

- insurance was regulated l ike any other business enterpr ise and was

not a source o f wor ry to investors. B u t w i t h the prornulgation o f 1976

insurance decree " the conduct o f insurance business came unde r the

severe search light o f government: , 'According t o him, since 1976 decree

was prornulgated, a l l o thers following have been more and more s t r ingent

in the i r provisions. While the 1991 decree repealed and expanded the

1976 decree, the must recent which i s the 1997 decree repealed and

f u r t he r expanded the provis ions in 1991 decree.

The Niger ian insurance year book (1990191) stated tha t the insurance

department o f the federal m in is t ry o f finance and the of f ice o f t he d i rector

o f insurance are g iven the responsibi l i ty t o control act iv i t ies o f insurers

t o ensure tha t they comply w i th provis ions o f the decree.

Ornodu (1 997) in his paper observed tha t the most recent decree,

the 1997 decree, retained most o f the 1991 decree provis ions but contains

modifications that impose s t i f fer penalt ies fo r any breach. He noted

also the establishment o f a National l nsurance Commission which w i l l now

be responsible fo r supervis ion o f the pract ice o f insurance in Nigeria.

UNDERWRITERS ( INSURERS)

Gordon e t a l (1981) desc r i bed them as sel lers o r s u p p l i e r s o f insurance.

Acco rd ing t o them t h e y a r e l im i ted l i a b i l i t y companies most ly w i t h shareho lders

as p r o p r i e t o r s .

Sect ion 3(1) o f 1991 i nsu rance decree p r o v i d e s t h a t n o one sha l l

c a r r y o n a n y c lass o f i nsu rance bus iness in Niger ia except ;

a ) a company d u l y i nco rpo ra ted as a l im i ted l i a b i l i t y company u n d e r

t h e company a n d a l l i ed ma t te rs decree (CAMD)

b ) Co-opera t ive i nsu rance society r e g i s t e r e d u n d e r a n y law o r enactment

r e l a t i n g t o co-operat ive society.

c ) a m u t u a l i nsu rance company.

d ) a b o d y d u l y es tab l ishment t o t r a n s a c t i nsu rance bus iness .

Sect ion 2(1) o f t h e decree c lass i f ies i nsu rance bus iness w h i c h

can b e u n d e r t a k e n b r o a d l y i n t o t w o areas.

a ) L i f e i nsu rance bus iness

b ) Non l i f e i nsu rance bus iness .

T h e decree f u r t h e r o u t l i n e d t h e mode o f ope ra t i on o f i n s u r e r s ,

t h e accounts a n d a u d i t requirement, among o the rs .

T h e i r rsurance yea r book (1990191) t r a c e d t h e h i s t o r y o f i n s u r e r s

in Niger ia, it w r o t e t h a t t h e f i r s t i nsu rance bus iness was i n t r o d u c e d

b y B r i t i s h Merchan ts in t h e late 20 th c e n t u r y . A c c o r d i n g t o it, t h e

f i r s t conrpany t o es tab l i sh full b r a n c h in N ige r ia was t h e Roya l Exchange

Assurance in 1921. T h e bus iness o f insurance, be fo re 1960, it f u r t h e r

stated, was dorminated b y fore ign owned insurance companies. According

t o Omodu (1997), there were less than twen ty companies operat ing in

Niger ia wi th in t ha t per iod o f wl i ich twe lve ( l2 ) were fore ign owned and

on ly f ive indegenous. The f i r s t indegenous company he noted

was the A f r i can Insurance Corripany founded b y Dr . K . Mbadiwe in 1950.

He also stated tha t on ly v e r y few classes o f businesses were t ransacted

a t tha t per iod. B u t since 1960 the insurance market in Niger ia experienced

accelerated g row th t ha t b y 1994 there were 145 reg is tered companies.

The Niger ian insurance year book (1995) gave the ownership

s t r uc tu re o f t he companies as follows:

Pr ivate ( indegenous) on ly 118

p r i va te ( indegenous and fore ign) 8

federal government 2

state government on ly 6

government and p r i va te ( indegenous

and fore ign) 7

Source: The Niger ian insurance year book 1995.

On reinsurance (also selli?r;s o f insurance) Vaughen and Cur t i s

(1978) descr ibed it "as a device whereby a n insurance company may

avoid the catastrophe harzard in the operat ion o f the insurance mechanism."

According t o them, it i s the insurance o f i nsure rs and i s based o n

the p r inc ip le o f t rans fe r and shar ing o f r i s k . They observed t ha t

i t s aim i s t o p ro tec t themselves against catastrophe o f comparatively

large single loss o r large number o f small losses caused b y a single

occu rence .

Gordon e t a l (1 981 ) explained tha t reinsurance corripariies specialise

in accepting the t rans fe r o f "su rp lus o r excess" insurance from the

companies who accepted it o r i y i t ~ a l l y frorrl the publ ic . The reason f o r

such t rans fe r according t o them i s the acceptance b y a n i r isurer o f

r i s k too onerous, the insure r t hus wi l l t rans fe r the p a r t above i t s re tent ion

l imit t o a re insurer .

Omodu ( 1 997) stated tha t the existence o f indegenous re insure rs

in Nigeria i s ve r y recent so before 1977 a l l re insurance were done

overseas t o t l i e disadvantage o f the Niger ia economy. It was no t until

1978 that the Niger ia keinsurance Corporat ion comrnericed business. He

f u r t h e r explained tha t th i s indegenous reinsurance company has con t r ibu ted

immensely in the rap id developrrient o f insurance companies as they

are able t o p rov ide reinsurance services to the young Niger ian companies.

According t o him the number o f indegenous reirrsurance companies was

f ive b y 1994 arid these reir isurarice cornpariies have strengthen4ed the

business o f insurance in Nigeria and have helped Nigeria t o conserve

a huge sun1 o f fore ign exchange outf low.

2.3.3 INTERMEDIARIES OR MIDDLEMEN

Gordon e t a l (1 981) explained tha t a l though a b u y e r can approach

a se l le r d i rec t l y in insurance transactions, o f ten intermediaries help

t o match them.

The Niger ian insurance year book (1990191) stated t ha t t l i e main

intermediaries and d i s t r i bu to r s o f insurance business in Niger ia today

can be subdiv ided in to three classes namely:

- Brokers, agents and others. Th is i s shown diagramatically below:

F igure 2.2 Niger ian l r~surance intermediaries I

I r

Brokers ~ ~ 2 r l t s Ot Je rs .(

Fu l l t m e p a r t time * Surveyors Agents Agents * Claini Adjusters

* Accountants

* Solicitors

* Estate Agents * Bank Managers etc.

" Source: Niger ian Insurance year book 1995 page 106.

Brokers: Gordon e t a l (1981) descr ibed insurance b rokers as ind iv iduals

o r f i rms whose fu l l .time occupation i s the placing o f insurance w i th

irlsurance companies.

The insurance year book (1990191) stated that they are full time professional

and are appointed b y the insured who usual ly receive h igher ra te o f commission

as remuneration because as b rokers they a re held as exper ts in the f ie ld

o f insurance.

The insurance decree o f 1991 Sec. 30(1) p rov ided tha t a person cannot

t ransact business i n Nigeria as a b roke r except he i s registered in accordance

to the specifications in the decree. Section 30(8) requi res tha t an

insurance b roke r should be incorporated as an unl imited l iab i l i ty company.

The decree a n ~ o r q other requirements for operation specif ied in section

30(8) ( b ) that the b roke r should maintain in i t s senior rnangenient a t

least one person who i s pro iess ior~al qual i f ied and has had a t least 7 years

experience at senior nianagernent w i th an insure r o r b roker .

In Nigeria according t o Orriodu ( 1 9 9 7 ) the ra te o f expansion o f

insurance brokerage has not on ly been phenomenal b u t also outrageous.

From a no b roke r market before independence, insurance business in

Nigeria is now more o r less a b roke r market w i th over 300 brokerage

firrris registered in Nigeria as a t 1995 .

Agents: Mehr e t a l ( 1 9 7 6 ) def ined an insurance agent as "anyone

authorised b y a n insure r to solicit, create, modify o r terminate contracts

o f insurance between the insure r and the insur ing publ ic" .

The Insurance year book ( 1990191 ) explained that agents can be

appointed b y the insure r on p a r t time basis, f u l l time and own agent.

When on full t h e , it continued, the agent could be remunerated . b y

way o f salary o r cornbination o f salary and cornrnission while p a r t time

agents on ly receive cornrnission since usual ly they are employees else

where but because o f the i r posi t ion could a t t rac t customers t o the insurers .

Own agent according to the ycar book ( 1990191 ) are proposers who

are appointed as agents o f the i r business and who also receive cornrnission

as remuneration.

It f u r t h e r stated tha t the agents are requi red b y law to reg is te r

and be licensed before they can transact insurance business. Section

2 8 ( 1 ) o f 1991 insurance decree provided that "No person shall t ransact

business as an insurance agent unless he i s licensed in tha t behalf

under t h i s decree". The decree among other th ings specif ied t he i r

dut ies and l iabi l i t ies.

2.3.4 CONSUMERS -

The insurance year book (1990191) ident i f ied the fol lowing people

as main consumers o r buye rs o f insurance;

- indiv iduals;

- business organisations;

- charit ies, c lubs and o ther organisations;

- pub l i c and local author i t ies;

- pub l i c corporations;

- government ins t i tu t ions

ROLE OF INSURANCE

On the role insurance p lays in the economy, Joe l r u k w u (1997)

ident i f ied the fol lowing:

1 . Insurance i ndus t r y i s a major mobil izer o f funds f o r capi ta l investments.

There funds come pa r t l y frorn premiums collected and a re invested

in d i f fe ren t sectors o f the national economy "such as housing

development, the bu i ld ing o f factories, indust r ies and o the r economic

ventures ."

2 . Li fe insurance faci l i tates savings habi t . Th i s he he ld makes government

t o encourage the development o f l i f e assurance in most count r ies

so as to ensure that the economy benef i ts frorn these savings and

the l i f e funds t hus accumulated. Government he went on achieves

t h i s t h r o u g h the o f fe r o f generous tax rel iefs on l i fe premiums.

l risurance faci l i tates the ef f ic ient operat ion o f the c red i t system.

tle explained tha t Insurance companies apar t from being sources

o f c red i t themselves since they lend money t o pol icy holders,

faci l i tate lending b y p rov i d i ng addi t ional col lateral securit ies.

Insurance companies accordir ig t o hiln are invo lved in several loss

prevent ion act iv i t ies designed to reduce bo th the sever i ty arid

f requency o f losses.

In summary, he said tha t it i s ev ident tha t in a l l the main sectors

o f the economy insurance cornparlies p lay the most v i ta l ro le in promotion

o f a l l forms o f investment as faci l i tators and as inst i tut iorral investors.

CllAPTEli THREE

RESEARCH METHODOLOGY

In conduct ing the research, though the insurance industry i s the

case s tudy, a l l the par t ic ipants were not used. Th is i s because some

o f the operators in the i ndus t r y l ike insurance brokers , loss adjusters

and agents are not r i s k bearers b u t on ly earn commission which they

are free to spend t o cover t he i r expenses and p ro f i t .

Reinsurance companies which are also r i s k bearers were excluded

because non o f them has been quoted in the Niger ian stock exchange.

3.1 AREA OF COVERAGE

The s tudy was conducted us ing insurance companies which a re

r i s k bearers. Th is is because the premium paid to r i s k bearers are

supposed t o be he ld in custody for po l icy holders so tha t when claims

arise, they could be sett led wi thout delay. Th i s fact has been

responsible for government regula t ing the solvency, reserves and

investment o f r i s k bearers.

3.2 SOURCES OF DATA

Data f o r the s tudy was d rawn from b o t h p r imary and secondary

sources.

PRIMARY SOURCES: There was a d i rec t observat ion o f what i s happening

wi th in the i ndus t r y . These include closure o f some branches b y companies,

c u t th roa t competition, ra te cu t t i ng and retrenchment o f staf f .

Also, a quest ionna i re was d e s i g r ~ e d a n d administered t o g a t h e r

in fo rmat ion used t o confirrn o r r e f u t e these observat ions a n d some of

t h e r e p o r t s studie.d.. T h e analys is a n d f i n d i n g s o f t he quest ionna i re i s

p resented a t t h e e n d o f chapter t h ree .

SECONDARY SOURCES: Data f o r t h e s t u d y was d r a w n also f rom Secondary

sources. These sources inc lude.

- Schools a n d p u b l i c l i b ra r i es

- Company l i b ra r i es

- T e x t books

- Journals a n d magazines

- Periodicals a n d seminar pape rs

- Insurance laws

- Annua l r e p o r t s a n d accounts o f companies

3.3 . SAMPLING FRAME

The l i s t f rom which t h e sample was d r a w n i s made up o f corripanies

quoted in t h e N iger ian s tock exchange as a t 1996. We a r e const ra ined

t o use on l y quo ted companies so as t o ob ta in annua l r e p o r t s a n d accounts

p repa red a n d presented in a similar manner as r e q u i r e d b y Secur i t ies

a n d Exchange Commission.

L i s t o f quoted insurance companies as a t 1996

1 . BAICO INSURANCE PLC

2. ROYAL EXCHANGE ASSURANCE PLC

3. NEM INSURANCE PLC

4. A I ICO INSURANCE PLC

UNlC INSURANCE PLC

AMICABLE ASSURANCE PLC

NIGER INSURANCE COMPANY PLC

LAW UNION AND ROCK INSURANCE PLC

LASACO INSURANCE PLC

GUINEA INSURANCE PLC

I'IIESTIGE ASSURANCE COMPANY PLC

SUN INSURANCE NIGERIA PLC

TOWERGATE INSURANCE PLC

WEST AFRICAN FROVISIONAL INSURANCE PLC.

3.4 SAMPLI NC PLAN

The s tudy was conducted w i t h a sarr~ple d rawn frorn the quoted

insurance companies. The reasons for making use o f a sample and

not a corr~plete census a re as follows:-

1 . Companies in the insurance i n d u s t r y o f f e r similar services and

thelecjal requirements a f fec t them in the same way. It is therefore

bel ieved tha t since there i s similarity among the elements in the

population, a sample wi l l adequately represent the character ist ics

o f the to ta l population.

2 . There in a n argument t ha t a s tudy w i th a sample i s o f ten be t te r

than w i th complete census. Th is i s because sampling according

t o Derning (1960) "Possesses the poss ib i l i ty o f be t te r in te rv iew ing

( tes t ing) , more thorough invest igat ion o f missing, wrong o r

suspicious information, be t te r superv is ion and be t te r processing

than i s possible w i t h complete coverage".

3 . Sampling prov ides much qu icker resu l ts .

In summary, sampling reducescost o f survey, i s economical in

terms of tirne, prov ides more accurate resu l ts and o f fe rs greater scope

o f enqu i ry .

It i s hoped therefore tha t w i t h t he use o f a sample the s tudy

wi l l have greater c red ib i l i t y arid acceptance.

SAMPLE SIZE DETERMINATION

In determining the sample size it was no t possible to use the formular

fo r calculatir iy sarnple size which goes thus :

Where P i s the sarnple proport ior)

and q. i s (1-P)

while 1 i s the marg in o f e r r o r

and z i s the corifiderice l imit o r degree o f conf ider~ce

hause: o f the small nurriber o f the sample frame.

In selectiny the sample, the companies were s t ra t i f i ed i n t o two:

cornposite and non- l i fe insurance compar~ies.

The composite insurance conrpanies o f f e r bo th non l i fe and l i fe

insurance business while non- l i fe c o ~ ~ p a r i i e s o f f e r on ly general insurance

business.

The corripanies were s t ra t i f i ed along these lines because the s ta tu to ry

requirement a re made a l o r q tha t l ine on areas o f investments, reserves

and solvency. Also, s t r a t i f y i n g in t h i s way wi l l g i v e a b e t t e r representat ion

o f t he d i f f e r e n t classes o f companies opera t ing in Nigerian insurance

i n d u s t r y .

Companies were selected randomly a n d wi thout replacement f rom

each strata. T h r e e cornpanies were d r a w n fromeeachstratuln the reby

making the to ta l number o f companies used t o be s ix (about 40%).

3.6 REL IABIL ITY AND V A L I D I T Y TESTS

Due t o the nature o f t he source o f data used which a r e most ly

secondary, the researcher cou ld no t cont ro l the qua l i t y o f the data

a t source.

T o ensure re l iab i l i t y and va l i d i t y o f in format ion contained in the

repo r t s a n d accounts, on l y aud i ted a n d pub l ished accounts were used.

T h e use o f aud i ted accourits ensures tha t t he repo r t s a n d accounts

contained a r e re l iable at id va l i d because aud i t ve r t i f i ca t i on guarantees

tha t the accounts t h u s aud i ted show t r u e and fa i r view o f t he companies

operat ion f o r the per iod .

A N A L Y T I C A L TECHNIQUES

The data generated would be tabulated f o r f u r t h e r processing.

It i s assumed tha t the populat ior i i s normal and the sample d r a w n f rom

it equal ly riormal.

T h e accepted confidence i n t e r v a l i s 95%. T h i s means t h a t t he

p robab i l i t y t ha t t he null hypothesis w i l l be re jected when it i s t r u e

i% 50, .

The ana ly t ica l techn iques t h a t were t o be used in t e s t i n g t h e

hypothes is i nc luded t h e mean, var iance, s t a n d a r d dev ia t i on a n d t-

d i s t r i b u t i o n . T - d i s t r i b u t i o n was chosen because t h e sample size

i s small ( ~ 3 0 ) .

T h e d e f i n i t i o n o f t h e s ta t is t ics employed a re as follows

Mean ( X ) = g+i

Variance ( S Z ) = ( x i - x ) ~ $--- n

Standard dev ia t i on

= 2 -

t = X - X

Where Sx = S / n

3.8 ANALYSIS AND FINDINGS OF T H E QUESTIONNAIRE

A s ea r l i e r s ta ted in chap te r 3.2, a quest ionna i re was des igned

t o g a t h e r in format ion wh ich would enable t h e researcher con f i rm o r

r e f u t e some o f t h e r e p o r t s a n d observat ions . A copy o f t h e quest ionna i re

a p p r s ' in append ix 1.

T h e quest ions co l l ta ined in t h e quest ionna i re were s t r u c t u r e d t o

e l ic i te t h e necessary informat ion. T h e f i r s t p a r t (made up o f quest ions

1-4) were pre l iminar ies wh ich r e q u i r e d t h e persona l da ta o f companies

38

a n d respondents. The second p a r t (made up o f questions 5-19) were

s t r uc tu red t o highlight among others t he problems facing t he i ndus t r y

tha t could lead t o d is t ress as repor ted and t he role o f t h e superv isory

au thor i t y .

Questionnaire D is t r ibu t ion and Collection

The quest ionnaire was administered t o managers o f the s i x selected

insurance companies i n Por t Harcour t . The choice o f Por t t i a rcour t

was considered good because outside Lagos it i s t he n e x t b iggest market

in Niger ia fo r Insurance business.

The quest io t i~ ia i res were d i s t r i bu ted t o t he Managers o f the s ix

insurance companies selected for t h i s s tudy independent ly.

A l l t he respondents completed the i r quest ionnaire and re tu red

them.

Quesitonnai r e Ar~a lys is --

The responses t o the questions on the prel irniary sectioti showed

that the respondents were the managers o f the selected companies. Also

revealed was t ha t a l l the resporiderits had f i r s t degree o r be t te r

c~uali t ications. Th i s suggests tha t the respondents are knowledgeable

enough and could unders tand the quest ions well enough as well as g ive

intel l igent answers.

The quest ionnaire would be analysed in two parts; t h e f i r s t p a r t

would deal on problems facing the Niger ian insurance i ndus t r y while

p a r t two would look a t t he roles o f the superv isory au thor i t y .

Problems fac inq t h e N ige r ian insurance i n d u s t r y

In t h i s f i r s t p a r t o f t h e analysis, t h e quest ions a n d responses

o n the problems o f N iger ia Insu rance I n d u s t r y a r e p resen ted a n d discussed.

Question 5 : What d o y o u cons ider t h e most ser ious obstacle in g e t t i n g

a new insurance busienss.

Response No o f Responses Percentage

a) B a d corpora te image 0

b ) Un in formed i n s u r i n g p u b l i c 5

c) I ne f fec t i ve r r ~ a r k e t i n g

T O T A L G

T h e responses ind ica ted t h a t un in fo rmed i n s u r i n g p u b l i c i s t h e

most ser ious obstacle faced whi le g e t t i n g insurance business. T h i s

i s shown b y high response r a t e o f 83% as aga ins t 0% f o r B a d co rpo ra te

image and ' 17% f o r i ne f fec t i ve market ing .

Question 6 : How o f t e n d o y o u al low more t h a n t h e o f f i c i a l d iscount

r a t e in ca lcu la t ing premum?

Response

v e r y o f t e n

No o f Responses Percentage

o f t e n 4 6 6

No t o f t e n

T O T A L

T h e responses he re show t h a t i n s u r e r s o f t e n al low more t h e n t h e

o f f i c ia l d i scoun t r a t e as shown b y t h e response r a t e o f 66%. More t h a n

o f f i c i a l r a t e b e i n g al lowed v e r y o f t e n a n d n o t o f ten h a d a response

o f 17% each.

Question 7; Do you g ive b roke rs incent ive t o get new business from

them?

Response

a ) Yes

b ) No

c) Don't know

T O T A L

No o f Responses Percentage

67% o f t he respo~ idents agree tha t they g ive incentive t o b roke rs

while 33% said they do not g ive incent ive t o b roke rs to ge t business

from t t w r ~ .

Question 8: What is the average nurnber o f business wr i t t en b y y o u r

b ranch pe r month in these years?

Year - Av. No. o f Businesses Percentage

T O T A L

The responses to t h i s quesitorl show tha t an average o f 40 business

o r 41% were wr i t t en in 1996, 35 o r 36% in 1997 and 23 o r 23% in 1998.

Question 9: What i s the average number o f claim notices received b y

you r b ranch pe r month?

Av. No o f Claim notices No o f respondent Percentage

1 1 - 15

TOTAL

The responses show t ha t a l l t h e respondents receive a n average

o f between 1 - 5 claim not ices p e r month.

Question 10: What i s t he l e n g t h o f t ime it takes t o set t le a claim?

Time No. o f Respondents Percentage - --

One t o th ree months 1 17

Th ree t o s i x months 3 5 0

S ix months t o one year

T O T A L

T h e responses show t ha t it takes 504, o f t he respondents t h ree t o s i x

l n ~ n t h s t o set t le claims, 33% take s i x months t o one year a n d 17% one t o

t h ree months.

Question 11: How many s ta f f do y o u have in y o u r b ranch?

No. o f s t a f f

a) 1 t o 5

b ) 6 t o 1 0

c ) 1 l . t o 15

T O T A L

No o f Responses Percentage

2 33

T h e responses show t ha t 33% have between 1 t o 5 s ta f f , 50% 6

t o 10 s t a f f whi le 17% has 11 t o 15 s ta f f .

Question 12: How many o f these s t a f f a re profess ional ly qua l i f i ed?

No o f Profess ior~als No o f Responses Percentage

The responses show t ha t 67% of responses ind icate t he presence

o f rmi profess ional whi le 33% had profess ional .

42

Quest ion 13: What i s the number o f f r a u d cases repo r t ed in you r

c o ~ n p a ~ i y in t he fol lowing years.

Year

1996

1998 T O T A L

No o f f r a u d cases Percentage

The responses show t h a t 14 cases o f f r a u d were repo r t ed in 1996,

7 in 1997 and 8 in 1998 .

Quest ion 14: Has you r cornparby recen t l y embarked o n closure o f some

branches.

Response

a ) Yes

b) No

c) Don't know

T O T A L

No o f responses Percentage

2 3 3

4 67

The responses t o t h i s q u e s t i o ~ ~ show t h a t 67% answered No a n d

33% agreed t h a t companies a re c los ing some branches.

Quest ion 15: Has y o u r cornparby reduced s t a f f s t r eng th?

Respnses

c) Don't know

T O T A L

No. o f responses Percentage

4 3

83% o f t he responses show tha t companies a re reduc ing s t a f f s t r e n g t h

while 178 said n o t o such reduct ion.

Question 19: What do you consider the wors t problem facing the Niger ia

Insurance i n d u s t r y .

The responses indicated low awareness o f insurance services,

s t i f f competi t ion and ra te c u t t i n g among others.

The foregoing analysis shows tha t problems such as low awareness

o f insurance services ex i s t . Th i s was ev ident f rom the response tha t

uni formed i n s u r i n g pub l i c is the major obstacle faced b y i nsu re rs in

ge t t i ng new businesses.

Also ev ident from the responses i s the problem o f ra te c u t t i n g

as i nsu re rs had to o f ten allow more than the of f ic ia l ra te o f calculat ing

premium and many s t i l l g i ve incent ive to b r o k e r s t o ge t business from

them. T h i s s i tuat ion should, under normal circumstances,riot b e because

the b roke rs a re ent i t led t o commission as st ipulated in the law. G iv ing

f u r t h e r incent ive i s a measure t o beat competitors. T h i s also indicates

tha t there i s s t i f f conipeti t ion which was f u r t h e r h igh l igh ted b y the

decreasing number o f business w r i t t e n in the past t h ree years.

On the issue o f claims settlement the f ind ings show tha t a l though

v e r y few claims arise, i nsu re rs s t i l l take up t o th ree months on the

average before se t t l ing them. T h i s some writers bel ieve

unw i l l i ng t o insure.

Revealed too i s t he fact t ha t companies employ non

t o run the i r branches. No wonder the insurance decree

makes the pub l i c

professionals

now requ i res

tha t professional have t o be invo lved in insurance business and even

brokage f i rms a r e now t o keep in the i r s ta f f a t least orle professional.

The insu re rs however do n o t ho ld f r a u d as a problem and the f ind ings

indicate t h a t t he re i s less f raud in insurance i n d u s t r y .

Al though some companies are reducing staf f , less number

of companies a re c los ing down t h e number o f branches. T h e implicat ion

o f the existence of these problems inc lude delay and o f ten n o n sett lement

o f claims, bad image, slow g r o w t h and development. T h i s s i tua t ion

is def in i te ly unhea l thy a n d cou ld lead t o d ist ress wh ich i s r e p o r t e d

exists in the i n d u s t r y .

T h e Role o f t h e Superv isory Au tho r i t y

Table 3.1 : Questions a n d Answers o n the Role o f t he Superv i so ry

au tho r i t y .

Questions Responses

16. A r e you well acqua in ted

w i th the p rov i s ions o f t h e

insurance decree?

17. Has y o u r company

received a n y w a r n i n g 1

commendation f rom t h e

insurance s u p e r v i s o r y b o a r d

* 18. Has the insurance

superv isory b o a r d c a r r i e d

o u t on-the-spot checks in your company.

On t h e r o l e o f t h e superv i so ry author i ty , t h e respondents

as indicated b y a yes p e r c e n t o f 83% agree that they a r e wel l aqua in ted

w i t h the insurance decree. T h e y also accepted tha t t h e i r companies

have neither rece ived a n y warn ing n o r commendation f rom t h e s u p e r v i s o r y

author i ty as shown b y a n o answer o f 100%. O n t h e quest ion o f

whether the superv i so ry a u t h o r i t y has car r ied o u t on-the-spot check in t h e i r

company most o f the respondents said they do not know. (Don' t know

67%).

The implication o f these f ind ings i s t ha t the insurance superv isory

Board has not been closely rnoriitoring the act iv i t ies o f insurers . Otherwise,

how could managers o f b i g branches o f insurance f irms in Port Harcourt

not know i f t he superv isory au tho r i t y has ca r r i ed ou t on-the-spot

checks in the i r company. Also they a l l agreed that t he i r companies

have nei ther received warning n o r commendation which f u r t h e r po in t

t o the fact t ha t the Board has not been doing enough t o check the

act iv i t ies o f insurers .

Th is s i tuat ion i s worrisome especially now that the expanded insurance

decree i s m a k i ~ ~ g a lot more demand o n insurers .

It i s v e r y crucia l t o the i nsu r ing pub l ic and the nat ion tha t the

act iv i t ies o f t h i s important sub--sector be contro l led ef fect ively. Th i s

i s because as ear l ier mentioned, the insurance contract i s corr~plex and

a promise. Of ten too, the insured is not knowledgeable enough and

thus would so much benef i t from the pro tec t ion g i v ing b y the law enforced

b y the superv isory author i ty .

I n conclusion, it would be

lnve g i v e t ~ , credence t o some 'of

noted tha t the responses t o the questions

the observed and repor ted problems

suggest ing dist ress. These problerr~s mil i tate against t he g rowth

o f insurance business in Nigeria.

But , i f the insurance superv isory board would s i t u p and rnonitor

ef fect ively the act iv i t ies o f the i n d u s t r y l i ke the cent ra l bank i s doing

in the bank ing i ndus t r y , the i nsu r ing pub l ic in Niger ia may be saved

the cost o f hav ing more insurance companies distressed. It would also

ensure improved services whict; would i n t u r n ensure s tab i l i t y and

g rowth o f the i ndus t r y .

DATA ANALYSIS AND INTEHPIWTA'I'tON

In this chapter, the data collected for the study were analysed and interpreted.

'I'he audited annual reports and accounts ol'the six selected companies were gatllcred for the five (5) ycars.

UAlCO INS. I'LC'S annual report for 1996 could not be found. On enquiry, it was discovered that the company's account was no1 accepted by the Nigeria Stock Exchange. The accounts the company submitted was rejected and retunled to then1 for amendment.

T l~e study was however conti~~ued without tliis one year report.

The names of companies selected and other details are contained in table 4.1. The company names - appear in alphabetical order.

4 1 I'RESEN TA'l'ION OF 'I'AULES

Table 4.1 LIST OF COMPANIES SELECTED AND OTHER DETAILS

I I NIGERIAN PLC. I COMPOSII'E I I

I. 2. 3.

AIICO INSURANCE PL,C BAICO INSURANCE PLC LAW UNION & ROCK INS.

4. 5. 6 .

COMPOSI'I'E COMPOSI'I'E NON-

NEM INSURANCE I'LC. PRESTIGE ASSURANCE PLC UNIC INSURANCE PLC

I 992, 1993, 1994, 1995 & 1996 1992, 1993, 1993 & I995 1992, 1993, 1994, 1995 & 1996

COMPOSI'I'E NUN COMPOSITE NON-COMPOSITE

1992, 1993, 1994, 1995 & 1996 1992, 1993, 1994 I995 Kr 1996 1992, 1993, 1994 1995 & 1996

ANALYSIS 01' SOLVENCY MAKGIN MAIN'I'AINEI) UY COMPANIES

SEC 20 (1) of 1991 insurance decree require that all insurance companies should maintain a solvencv margin. The solvency margin should be calculated by finding the excess of tile company's admissible assets in Nigeria over its liabilities in Nigeria. Sec 20(2) of the decree stipulates tliat the solvency .-

margin thus calculated should not be less than 15% of the company's gross premium less re-insurance paid during the i~nniediate preceding accounting years.

Solvency margin = Excess gf Admissible Assets Liabilities

OR ADMISSIBLE ASSETS - LIABILI'I'IES

Theses LIA131LITIES are:

I) Reserve for unexpired risk 2) Keserve for outstanding clainls 3) Reserve for clai~ns incurred but not yet reported (IBNK)

OR INSURANCE FUND

ADMISSlBLE ASSE'TS EXCLUDE (1NAL)MISSlBLE ASSETS):

I) Fixed Assets 2) Prepayments 3) Accounts receivable from insurance business 4) Stationery stock

TABLE 4.2

AIlCO INS. PLC

1 5% of Prcn~iun~ ADMLSSIBLE ASSETS: lnvestnlcnt Cash in Hand/Bank 'Total Admissible Asscts Lcss Liabilitv in Nigeria -.-a-

lnsurancc fund Di~crcncc Percentage of diffcrcncc to prcmium DNCO MSURANCE PLC Gross Prcn~iu~n Lcss prcvious ycar rcinsurancc.

15% of prcritiu~u ADMISSIBLE ASS'rTS -

Lcss Liability: Rcservc for unexpired Risk Rcscrve for outstanding clain~s & iBNR diffcrcncc Pcrccntagc of diNcrcncc to pctniun~ LAW UNION & ROCK INS. PLC Gross Prcmium Lcss prcvious yca rcins. Nct Prcn~iu~u

ANALYSIS OF SOLVENCY MARGIN 1992 1993 1994 1995 1996

15% of Prcn~iunl

ADMISSIBLE ASSETS Invcstmcnl Cash in HandBank I 3,Y34I 20,970 1 2,787

1 57.369 1 96.074 I 97.906 &s Liabililics I Insurance h n d 37,644 58.11 5 1 72.089 DiKcrcncc 19,725 37,959 1 25,817 Pcrccntagcs of ~Ncrcncc to prcn~ium 64% 70% 1 36% NEM INS. YLC Prcnlium (Icss reinsurance) ( 34,868 1 39,156 1 34,043 15% of pretniuni 1 5,330 1 5,873 1 5,107 ADMISSIBLE ASSETS I lnvestn~cnt 1 33.053 1 54.570 1 35.507 Cash it1 HandBank 2,280 3,5391 2,505,

05,333 58,109 ) 38,012 Lcss Liabilities in Nigcria 1 111surancc fund 22.5 15 1 28.41 1 1 21 440

TABLE 4.2 ANALYSIS OF SOLVENCY MARGIN CONTINUED

PRES'I'IGE ASSURANCE PLC. Prcmium (Icss rcirsurancc) 1 5% ol prcmiun~ Adnissiblc Asscls in Nigeria

, lnvcstn~cnt Cash in HadBank

Lcss Linbililics in Nigcria

The analysis of solvency margin in table 4.2 shows that for the 5 years AllCO INS PLC maintained on the average an excess of admissible assets over liabilities in Nigeria of N567,677,OOO,OO BNCO N13,686,000.00 LAW UNlON &ROCK INS. I'LC N16,814. NEM N23,209,000, PRESTLGE N 132,767,000.00 and UN lC 1NS. N57,326,000.00

1992

N'000 24,R 14 3,647

, 67.997

~ I ~ S L I ~ C C fund Diffcrcncc ---

Pcrccntagc of diffcrcncc to prcniiunl UNlC INSURANCE PLC Prcmium (Lcss rcinsuriincc) 15% of prcniiunl ADMlSSlBLE ASSE'I'S 'Invcslnicnt Cash in IlandBank - Less Liabilities in Niscria Ikscrvc for uncxpircd risk Kcscrvc [or outslanding clainis & IBNR

Percentage of diffcrcncc premluni

The percentage of the solvency margin maintained by the companies was AlLCO 23 1.4% BALCO 217.5% LAW UNION % ROCK 41.2% NEM 52.4% PRESTLGE 241.6% and UNLC 22.12%.

4.876 72,873

1993

N'000 380,400

5,706

, 96.103

16,04 I 56.832 234%

173,829 20,074

160,571 21,980

182,401 57,025 75.776 49,690

37%

14,190 110,293

1994

N'000 53,048 7,957

, 129.175

23,972 86,32 1 227%

18 1,040 27,156

204,967 15,987

220,954 77,802

105.166 37,986

2 1%

14.528 143,703

1995

N'000 67,060 10,059

, 197.443

29,103 114,600

216%

273,789 41,068

214,276 31,085

245,361 1 3 , 93.538 38,362

14%

27,361 224,804

1996

N'000 86,652 12,998

, 241.686 29,835

271,521

37,600 187,202

279%

370,709 55,606

191,015 125,782 3 16,797 133,003 93.261

905,533 24%

COMPANY AVERAGE

8,073

,

52,843 2 18,678

252%

478,947 71,842

23 1,445 129,741 361,186 175,863 115.266

70,057 145

132,767 24 1.6%

43,149

57,326 22 12%

TABLE 4 . 3 ANALYSIS OF INVESTMENT OF COMPANIES IN GOVEIWMENT SECURITIICS (SECT. 21 (3) 1991 INSURANCE DECREE

An insurer sliall invest in Nigeria and hold i~ivesled ~ io l less than 35% of ils total Assets in securities specified under Governme~it and other Securities (Local Trustees Powers) Act and the Trustee Investment Act 1962.

KEY: A l~ivesl~ilc~lt of cot~ipa~lics in government securities L3 - Companies total Assets made of both fixed and current Assets C - Percentage of actual investment in governrnent securities by

companies to their total Assets. (C= AIB x 10011)

4.3 CALCULA'I'ION OF INVESI'MICNrl' IN GOVEHMENT SECURITIES BY COMPANIES

1 1992 1 1993 AIICO INS. PLC I N'000 I N'000 (A) lnvcstn~c~~t in 3 I ,998 1,900

558,466

(0 Pcrccnlagc of I I invcst~ncnt in Govt. SCC. 1 7.71% 1 0.34%

35% rcquircd i ~ ~ v c s l ~ ~ ~ c n l in Govcr~~~ncnt SCC.

1 142,222 1 195,463 BAICO INS. I'LC I I

Govt. scc. (B) Total Asscts 0 Yo of

i ~ ~ v c s l ~ ~ ~ c n t to tolal Assct

Rcquircd invcstn~cnl in

(A) l~~vcslmclll in Govt. Scc.

(U) Told Asscts 8 % of inv. / to

Tolal Asscls I~cqirircd inv. Govt.Scc. 35,354 743 19 NEM INS. PLC (A) lnvcstn~c~~t in 0 0

Govt. Scc. I (B) 'I'olal Asscls I 64,185 I 83,2I 1 (i? ~ / u of inv, to topal I I

Rcquircd i~lvcstn~cnl in Govt. Sec. 22,465 29,124

1994 1 1995 1 1996 1 CI. AVER,

TABLE 4.3 CALCULATED OF INVESTMENT IN GOVEIUMENT SECURlTlES BY COMPANIES

The analysis of i~west~nent of companies in government and securities specified under trustee investment act as shown in table 4.3 indicate that AllCO INS. PLC invested in government securities an average amount of N7,88O,OOO or 1.7%, BAlCO N725,OOO or 0.26%, LAW UNION & KOCK NU, NEM NIL while PRESTIGE AND UNlC had N26,680,000 or 9.62% and N 16,639,000 or 5.18% rcspcctivcly.

'l'AULE 4.4 ANALYSIS OF HESERVE FOR UNEXPIRED RISK (NON MARINE) SEC 19 (a) (i) INSURANCE DECREE

5

6

An insurer is required to credit to a reserve for unexpired risk in respect of its non-marine business (in no-life category) an aniouut not less than 45% of its total premium.

1994 N'000 600

186,687

0.32%) 65.340

9,752

03 1,922

4.49%)

221,173

IBHESTICE MS. PLC (A) IIIVCS~IIICII~ in

Govl. scc. (B) Tola1 Asscls Q9 "/n of inv. lo

Tolal Asscls Rcquircdinv.Go~l.Scc. UNIC INS. PLC (A) IIIVCS~IIICII~ in

Govt. Scc. (13) Total Asscls (c3 % of lllvcsllllclll

I Total Premium 121.103 128.517

lo Tolal Asscls

1995 N'000 66,200

272,236

24.32% 95.283

9,582

790,573

3.55%

276,70 1

0 INS. I

I Reserve for U.R 1 1.437 1 3.280

1992 N'000 2,500

86,454

2.89% 30.259

27.808

325,096

I Percentage of reservo I I

1993 N'OOO 2,500

144,926

- 1. 73'%1 50.724

26,471

420,573

8.54%

113,994

l99G N'000 6 1,600

236,688

18.86%

C E O

to premium 1 6.81% Reauired reserve 1 5.276

6.29%

147,201

C1. AVER,

26,680

9.62%

I993 N'000

I ROCK INS. PLC. I Total Preniiurn 16,944 50,735

2,852 10,247 #/=- Percentage of reserve to ~ r e ~ n i u m 16.8% 20..2%

114,341

9,582

928,840

3.02%

325,094

I Required reserve 1 4,236 1 12,684

90,246

16,639

5.18%

216,833

NEM INS. FLC - Total Premium 3 1,093 36,792 Reserve for 5,260 2,159 unexpired risk Percentage of reserve 16.9% 5.87% to premium I Required reserve 1 7,773 1 9,198

1994 N'000 5 1.863

1995 N'000 63.810

1996 N'000 -

CO. AVER.

AI LGO. INS. PL,C ;~nd I'RES'I'IGE ASS. PLC did not show i n tllcir a~ulual rcports and accounts Llic rcvcnuc accounts as rcquircd by sec.22 (b) of 1991 lasur;aicc llccrcc

TABLE 4.4 ANALYSIS O F RESERVE FOR UNEXPIRED RISK (NON MARINE)

This fact nude the delernlinalion of their reserve for unexpired risk impossible.

SEC I9

UNlC INS. PLA Total Premiu 111 Reserve for U R Percentage of reserved to prenlii~ni Required reserve

'I'ABSLE 4.5 ANALYSIS OF RESERVE FOR U.NEXFIRE1) RISK (MAIUNE) SEC 19

AII insurer is required to c~edit to a reserve for i~riexpired risk with an amount not less than 25% of its total prenhrn for rnarine/cargo business.

Table 4.4 shows that BAICO INS PLC for llle years maintained an average of N5,3 16,000 or 12.0GY0 reservc h r uncxpircd risk LAW UNION CI! ROCK INS. PLC N 14,794,000 or 16.8% while NEM INS. PLC and UNlC INS. PLC nianhincd N4,699,000 or 10.9% and N27J52.000 or 14.2% respectively

'a) (i) INSUItANCE DECIWE 1992 N'000 1 14,546 35,498

30..99% 28 637

BAlCO INS. I'LC Preni~uni Reserve for i~nexp~erd rlsk Percentage of reserve to prenilum Requ~red reserve LAW UNION & ROCK INS. PLC Prern~um Reserve for U R. Percentage of reserve to

1993 N'000 158,466 19,763

12.47% 39,6 17

premium Required reserve NEM INS. PLC Premium Reserve for U.R. Percentage of reserve to preniiu ti1

Required reserve

I994 N'000 232,377 30,430

13.1 % 58,094

1992

N'OUO

2,734 478

17.48%

1,230

3,070 299

1995 N'000 307,893 17,799

5.78% 76,073

1996 N'000 382,662 33,268

8.69% 95,666

9.45% 1,382

1,177 166

14.1%

-- 530

CO. AVER.

27,352

14..2% 59,797

1993

N'000

3,017 95

3 15%

1,358

3,397 82

2.41% 1,529

725 225

3 1%

3 26

1994

N'000

1,256 437

34.79%

5 65

3,938 135

3.43% 1,772

629 48

7.6%

283

1995

N'000

4,338 839

19 34%

1,952

7,707 942

12.22% 3,468

1,572 393

25%

707

19%

N'000

11,916 1,052

CO. AVER.

N'000

487 18.69%

1,276

502

8.83% 5,362

3,384 816

24.1%

1,523

7.33% 2,703

330 20.26%

674

TABBLE 4.5 ANALYSIS OF RESERVE FOR UNEXPIRED RISK (MARINE)

UNlC INS. PLC Premium Reserve for U.R.

Table 4.5 shows that BAlCO INS. PLC maintained an average of 18.69% of unexpired risk reserve in respect of its niarine businesses, LAW UNION & ROCK INS. PLC 7.33% while NEM INS. PLC maintaii~ed 20.36% and UNlC INS. PLC n~aintained 6.78% AllCO and PRESTIGE for reasons earlier mentioned could not be used in this analysis.

Percentage of reserve to premium Required reserve

TAUULE 4.6

1992

~ ' 0 0 6

19,282 836

NALYSIS OF OU'1STANL)ING CLAIMS RESERVE

SEC. 19 (b) 1991 INSUIWNCE DECREE

4.34'5/0

8,677

An insurer shall niaintaitl a reserve for outstandhg clai~iis which shall be made up of its total outstanding claims plus alwtlier 10% of such outstanding claims for claims incurred but nut yet reported (1.B.N.K).

I993

N '000 -

22,574 1,012

4.48%

10,158

Table 4.6 sl~ows that while that BAlCO INC. PLC has an average of N6,OOI,OOO outstanding claims plus incurred but nut reported (IBNR), UNlC INS. PLC has N 106,260,000.

1995

N'000

41,732 1,743

1994

N'000

28,574 2,068

BAICO INS. PLC U~~paid Clalnis IBNH (I 0% of OIClai~ns) Required reserve Actual reserve niatle UNlC INS. PLC Outstanding clain~s lBNR (10% of OIClaims) Required reserve Reserve fur outstanding claims

The other companies AIlCO, LAW UNION & ROCK, PRESTIGE and NEM INS. PLC did not show in their annual report and accounts, figures for outstanding claims for the year being analysed.

7.24Y0

12,885

1996

N'000

70,179 9,591

N '000

5,088 509

5,597 7,180

75,778 7,577.8 83,355 75,776

CO. AVER.

N'000

3,050 4.18%

18,779

N'000

9,998 1,000

10,998 7,232

- 105,166 10,516.6

115,673.6 105,116

13.67%

31,581

6.78%

16,411

N'000

3,584 358

3,942 4,415

93,539 9,353.9

102,892.9 93,538

N'000

3,151 315

3,466 9,244

93,261 9,326.1

102,587.1 93,261

N'000

11 5,266 11,526.6

126,792.6 115,266

AVER. N'000

-

6,001 7,018

-

106,260 96,591

I lo:

Il i :

TABLE 4.8

TES'I' O F IIYJ'O'TIIES6S & INTERPRETATION

'I'l~cre is no difference betweell the solvency margin n~aintained by the insurance industry and the solvency mryin pmscribed in the law

p=15'%/;,

'I'he insurrtnce industry maintain solvency margin less than the legal requircnnent.

11 4 5%

SOLVENCY MARGIN MAINTAINED BY INSURERS

INSURER SOLINNCY MAR(;IN N'OOO.OOO

AIICO 1 567.677

X I 2 (xi - x) 2

-

PERCENTAGE

oc = 0.05 'I'he number of degrees of freedom is n- 1=5 Critical value: 0.05 = 2.0 15 San~ple size 11-6, sample mean x=134.37 and sample standard deviation s=96.4567

The test statistic

Since 3.03 12 >2.0 1 5, the dif'ferent is significant. There is therefore insufficient evidence to suggest that insurers keep less than the legally required solvency margin. The null hypothesis of insurers keeping the legal requirement is therefore accepted.

TEST OF JlY POTIIESIS 2

I lo 'I'l~ere is no difference between tlie investment in government securities by insurance and the lcgally rcquiretl level.

p3 35%

1 . lnsurers invest less than the 35% required by tlie law on government and securities specified under tlie Trustee lrivestrrient Act.

~1<3 5 'YO

'1'AULE 4.9 Investnient in government sccurities and securities specified under the Trustee lnvestnlerit Act by insurcrs.

K= 0.05 . ' n= 6, the numbcr of degrecs offieedom 11 - 1 = 5

The critical valuc t for 5 degrees offieedom is t 0.0s = 2.015

.BAICO LAW UNION & ROCK NEM I'RES'I'I GE UNlC

Sample rncan JT= 2.7933, sample standard deviation s = 3.541

test statistics is t = s p y t = 2.7933 - 35 = -22 sldn 3.54146

Sincc - 22.2791i2.015 wc acccpt the altcrnatc Iiypollicsis that the industry invest less in government sccurities than is rcquired by the law.

0.725 0 O 26.68 16.639

TEST 0 1 7 IIYPO'I'IIESIS 3

0.26 0 0 9.62 5.18

Ho: The insurance industry maintainsreserve for unexpired risk for their general insurance business (nor1 Mari~ic) as required by the law.

p= 45%

Hi: Insurers niaintain less than 45% of Nct premium as reserve for unexpired risk for their general insurance business (nor1 - Marine).

p < 459'0

I<ESERVE FOR UNICXPIRED RISK MAINTAINED 11Y INSUItISItS (NON-MAItINk:)

INSURERS

AIICO m c o LAW UNION & ROCK

cx = 0.05 The number of degrees of'fieedonl is n - I = 3

11

Csi - x Y (xi -3'

Crilical value 1 o.os = 2.353

RESERVE POK UNEXPIRED RISK - NON-MARINE N'000,000

5.3 16 14 794

4 53.95 13.49 20.2126

Si~nple size n = 4, and sanlple ~ n e a n Y = 13.49 sample standard deviation s = 2.2479

PERCENTAGE OF NET PREMIUM MAINTAINED AS RESERVED llNEXPlRED RISK (xi)

12.06 16 8

The test statistic . - - 1 = x-:y -- 13.49-45

sd 11 2.2479h = -31.51 1.1239

- - -28.0363

Since -28.0363 < 2 353 we accept the alternate hypothesis that the industry mainlain less reserve for unexpired risk Il1a11 the legally prescribed level.

10.9

14 2

NEM PRESTIGE UNlC

130: There is no difference betweell the reserve for unexpired risk (marine) maintained by insurers and the level requir,ed law.

y= 25%

4.699

27.352

I : Insurers keep less reserve for unexpired risk (marine) in the general insurance business t l~an the legal requirement of 25% of premium.

g< 25%

TABLE 4.1 1 RESERVE IWR IJNEXPIRED IUSK MAINTAINED IjY INSURERS (MARINE)

I INSURERS I It ESEHVE 1WR UNEXPIRED HlSK

PEHCEN'I'AGE IWSEHVE '1'0 NET PREMIUM (xi)

I (MARINE) N'000,000 1

I NEM 0.330 1 20.36 I I3AICO I 0.489 1 18.69

ac=O.O5 The number of degrees of fieedom is n-1=3 Critical value: t 0.05 = 2.353

I A W UNION & ROCK

Sample size 1 ~ 4 , sample niean x- 13.29 and sample standard deviation s = 6.2659 'I'lie test statistics: t =a r13.29-25 = -1 1.7 1

sdn 6.2659144 3.1329

0.502 I 7.33

Sirice -3.7377 < 2.353, we accept the alte~nate hypothesis [hat h e reserve for unexpired risk (marine) maintained by insurers is less than the tegal requirement.

'I'GST OF I lYpo'I'1 ES1 S 5 Ho: There is no difference between the reserve for outstanding claims the industry maintain and

what the law stipulated. = 56.1305

1 : Tlie reserve for outstanding claims maintained is less than the legally required level

RESERVE FOR OUTSTANDING CLAIMS MAINrI'AINED DY INSURERS

LAW UNION B ROCK I - NI'M

INSURERS AIICO

K= 0.05 The number of degrees of rreedom is ii - 1 = 1 Crilical value 1 0.05 = 6.3 14

IWSEHVE 1WR 0U'I'S'I'ANI)INC CLAIMS N'000,000

Sarnple size n = 2, sample mean x= 51.11045 arid sample standard deviation s = 44.7864 'I'lie test statistic

t = F--4 s J n

Si~ice -0.1366<6.3 14 we accept the alternate hypothesis that the reserve for outstanding claims the industry maintain is less than the legally required level.

'I'ES'I' 0 1 f IIY 1'0'1'11 ESIS 6

1-10: There is no difference in continget~cy reserve maintained by insurers and the legally required contingency reserve

11- 4.94 I6 Hi: 'I'lle insurance i~ldustry ~nai~ilainslksscootiageucy reserve t l m the level required by the

law p< 4.94 16

'TALtL,k: 4.13 CON'I'JNGIZNCY RESERVE JiEP'T BY INSUIWHS

'I'hc rluinber ol'tlcgrecs ol' liccdorn 15 11 - I - 5 Critical valuc

INSUKEI<S AIICO I3AICO LAW U N I O N di IIOCK

Sample size n = 6, sample mean%= 4.8035, slandard deviation s = 2.9289

CON'I'INCICNCY I<k',SEl<VIC N'OO0,UOU (xi) 8.33 1.053 2.89

'I'hc test statistic.

N E M I 1.440

Since -0.1 154.2.0 15 we accept the alternate I~ypotlicsis that the contingency reserve maintained by insurers is less.

CHAPTER FIVE

DISCUSSION AND IMPLICATION OF FINDINGS,

CONCLUSION AND RECOMMENDATIONS

"The safety o f the people shall be the highest lawn Cicero

In t h i s chapter , t h e resu l t s o l t he s t u d y - t h e per formance evaluat ion

o f a serv ice o rgan isa t ion : case s t u d y insurance i n d u s t r y a r e discussed,

conc lus io r~s drawn, recommendation made based o n f i n d i n g s and

suggest ions l o r f u r t h e r s tud ies a r e g i ven .

T h e f i r s t p a r t o f t h e chap te r deals w i t h t h e resu l t s o f t h e hypotheses

a n d t h e i r i ~np l i ca t i ons in the fo l lowing areas - s tab i l i t y o f t h e i n d u s t r y

a n d nat ional econonry, f i l lancia1 in te r lned ia t ionprd safeguard t o t h e i r i su r i ng

pub l i c . Pa r t t w o deals w i t h corlclusions, recommendations a n d suggest ions

f o r f u r t h e r s tud ies.

T h e r e were s i x hypotheses tes ted i n t h e s t u d y a n d t h e r e were

su f f i c ien t s ta t is t ica l ev idence t o accept f i v e o f them as t h e ana lys is showed

eviderlce t o re jec t t h e i r lull h y p o t t ~ e s i s . One hypo thes is however was

no t accepted as t he re was i nsu f f i c i en t s ta t is t ica l ev idence t o re ject t h e

null hpothesis .

T h e hypo thes is t h a t was re jec ted i s t h a t " T h e ac tua l so lvency

marg in mainta ined b y t h e i r lsurance i n d u s t r y i s less t h a n t h e legal ly

recjui r e d so lvency marg in . 'I

T h e hypo thes is accepted were as fol lows :

1 ) l r i su re r s inves t less in government secur i t i es t h a n i s legal ly

requ i red .

2 . The insurance i n d u s t r y mainta ins less t h a n t he rese rve f o r u n e x p i r e d

r i s k s t ipu la ted b y t h e law in t h e i r non-marine bus iness.

3. tnsur-et-s keep less t h a n the r e q u i r e d reserve f o r unexp i red r i s k

in t l i e i r marine business.

4. The insurance i n d u s t r y rnaintains less t h a n t h e r e q u i r e d reserve

f o r ou ts tand ing claim.

5. l n s i ~ r e r s keep less cont ingency reserve than the legal ly r e q u i r e d

level.

5.1 DISCUSSION OF RESULTS/FINDINGS

5.1.1 S T A B I L I T Y OF THE INDUSTRY E NATIONAL ECONOMY

The i r~surar ice i n d u s t r y needs t o s u r v i v e so as t o c a r r y o u t t h e i r

var ious func t ions e f fec t ive ly . S u r v i v a l i s t he goal wh ich eve ry e n t i t y

pursues v igorous ly . The i n d u s t r y ' s s tab i l i t y i s also a n impor tant

ingred ient t o t h e s tab i l i t y o f the r ~ a t i o r ~ a l economy. T h i s i s because

the i n d u s t r y i s a const i tuent o f the f inancia l sector o f t he economy.

T o mainta in s tab i l i t y i n the i n d u s t r y the government requ i re& tha t

eve ry i nsu re r shou ld r r~ainta in a solvency rnargin o f n o t less t h a n 15%

o f ne t premium made up o f the excess o f admissible assets o v e r l iabi l i t ies

i n Niger ia.

The def in i t ion o f admissible assets as exc lud ing s tock o f stat ioneries,

f i xed assets a n d prepayments was gearn l t oward us ing assets t h a t a re

conver t ib le with less loss into cash in the calculat ions. T h u s on ly investments

and cash qua l i f y as admissible assets. Also the l iabi l i t ies on l y inc lude

the reserve fo r unexp i red r i s k s a n d outs tand ing claims. These reserves

represent t h e l iab i l i t y o f t he i n s u r e r s to the po l icy holders.

In e f fec t t he governrnent reasons t h a t i f such assets exceed such

l iabi l i t ies and such excess i s equal t o o r more t h a n 159, o f the ne t premium

cornparlies arid tlwrelny the irdustry is solvent. In addition, it was f u r t h e r requ i red

tha t a cont ingency reserve should be maintained.

Such cont ingency reserve shou ld b e not less than 3% o f to ta l premium

o r 20% o f profit k f u w tax wh ich eve r i s h ighe r . The cont ingency reserve

would cover fludualiorls i n secu r i t y arid stat is t ical estimates. T h u s it would

s t reng then the i n d u s t r y nrore a n d p ro tec t it from the devasta t ing e f fec t

o f adverse fluctuations in secur i t ies and stat is t ical estirnates.

The resu l ts o f the s t u d y on solvency marg in maintained b y the

i n d u s t r y as i r id icated in data analysed and conf i rmed b y the research

hypothesis tested showed tha t there was n o d i f fe rence between the requ i red

and actual. The re was f u r t h e r ind ica t ion t h a t f o r a l l t he companies

sampled, t h e i r solvency margins,were more than the requ i red level.

OII co t \ t i r~ge l \cy reservc, t he data analys is and the hypothes is tes t

showed t h a t t he i n d u s t r y kept less than the legal ly requ i red reserve.

It would be observed however t h a t u n l i k e the case o f t he solvency marg in

where the t r e n d was t h a t a l l t he satripled cornpanics maintained more

t h a n the requ i red level, t hey d i f f e r e d in the p rov i s ion fo r cont ingency

reservc, while f o u r o f t he coniparlies sarnpled kep t t he r e q u i r e d level

o f reserve two o thers fai led. The resu l t however was tha t t h e y k e p t

less con t i r yency reserve because the rnary in w i t h wh ich the two

companies fai led t o meet u p t h e r e q u i r e d reserve was much h igher ,

while the o thers k e p t t he lriiriiurri requ i red.

Cons ider ing b o t h resul ts , it cou ld be i n f e r r e d tha t in t h e area

o f mainta in ing s tab i l i t y t h e i r i dus t r y t r i e d t o comply w i t h the law.

T h i s implies tha t t he i n d u s t r y i s able t o s u r v i v e as well as w i ths tand

adverse fluctuations in secur i t ies a n d stat is t ical estimates.

Also as s u r v i v a l implies tha t t he re i s less fear o f business fa i lure,

t h i s cou ld account fo r the i n f l u x o f pa r t i c i pan ts i n t o the i n d u s t r y in

the recent past . It i s there fore o f g rea t benef i t t o the nat ion tha t t h i s

p a r t o f t he f inancia l subsector s t i l l show great prospect .

5.1.2. F INANCIAL INTERMEL)IATION

One major ro le the insurance i n d u s t r y p lays in t h e ecoriorrly i s

f inancia l in termediat ion. 'The i n d u s t r y gets funds f rom t h e fo l lowing

SOU rces : -

- premium p a i d b y po l icy ho lders

- investment income

- subscr ibed capi ta l

- s u n d r y sources

These i rwo lve v e r y huge s u ~ n s which i f a f fec t ive ly mobil ized would

be o f g rea t benef i t t o t h e nation.

Give11 a choice o f where t o d i r e c t t he funds, t h e i n d u s t r y would

p r e f e r h i g h r i s k , h i g h r e t u r n investment wh ich would generate more

p r o f i t f o r investors a n d enable them t o grow. Some o f t h e areas where

these surns would be invested may no t b e the p r e f e r r e d sector o f t h e

econolny .

T o make t h e mobil izat ion o f f unds b y the i n d u s t r y most e f fec t ive

t o the i n te res t o f t h e nation, t he governrnent in t h e insurance decree

1991 requ i red t h a t no t less 35% o f to ta l assets in t h e i n d u s t r y should

be invested in government stock a n d secur i t ies speci f ied u n d e r t h e t rus tee

investment A c t 1962. The government t h i s way has t r i e d t o d i r e c t t he

f u ~ ~ d s avai lable t o t h e i n d u s t r y t o developnelital needs o f t h e economy.

The research f i nd ings show t h a t t h e i n d u s t r y represented b y a

sample o f companies i i yo res to a la rge ex ten t the prov is ions o f t h i s section

o f the decree. The analys is o f irrvestment in government secur i t ies

as show11 b y t h e data and f u r t h e r suppor ted b y the stat is t ical

signif icance o f t he hypothesis tes ted showsthat t h e i n d u s t r y invested in

government secur i t ies v e r y small po r t i on o f the huge funds avai lable

t o it.

The implications o f t l ~ i s act ion a r e as follows:-

i ) The i n d u s t r y has n o t con t r i bu ted e f fec t ive ly t o nat ional development

b y w i thho ld ing sorne o f t he f u n d s tha t a re most needed f o r economic

development o f t he nation.

i i ) Such low investment in yovernment secur i t ies may imply a misallocation

o f resources from the po in t o f v iew o f yovernment.

i i i ) B y no t i nves t i ng as r e q u i r e d in government secur i t ies which a re

norrnally considered r i s k free, t h e insurance i n d u s t r y i s consequently

making r i s k i e r investrnerlt. Such r i s k y investment cou ld jeopardise

the po l icy liolclers' f unds placed i n t h e i r custody.

5 . 1 . 3 SAFEGUARD OF T l l E INSURING PUBLIC

Insurance cont rac t un l i ke many o the r cont rac ts i s based o n promise.

The i n s u r e r promises t o pay the i n s u r e d f o r i nsu red losses a n d in r e t u r n

they charge Lhe i n s u r e d p ren~ ium. The insu red i s there fore a t t he mercy

o f the i n s u r e r t o redeern h i s promise.

T h i s pecu l ia r feature o f insurance cont rac t r~ iade regu la t ion o f

insurance i n d u s t r y ac t iv i t ies v e r y impor tant . Such regu la t ion would

be necessary t o p ro tec t t h e less kr~owledgeable a n d o f ten unirrforrned

i ~ ~ s u r i r q pub l i c .

111 N iger ia t h e 1991 insurance decree number 58 in considerat ion

o f t h e fact a fore stated, s t ipu la ted t h a t e v e r y i n s u r e r shal l mainta in

reserve fo r u n e x p i r e d r i s k and outs tand i t ig claims. These reserves

represent t h e l i ab i l i t y o f t h e i m u r e r s t o t h e i r l su r iny pub l ic . P

The law f u r t h e r made i t c lear tha t no dividend cou ld b e p a i d except

when these reserves a re f u l l y p rov ided .

The s t u d y showed t h a t in the p rov i s ion f o r t he reserve f o r unexp i red

r i s k s which i s 35% f o r o the r general h s i n e s s e s a n d 25% f o r mar ine business,

nor] o f t he sampled i n s u r e r s k e p t up t o t h e r e q u i r e d level. Also observed

i n the case o f reserve fo r ou ts tand ing c la i~r is was t h a t most co~r~pan ies

fai led t o declear t h e i r ou ts tan r l i r q claims. T h i s was done p robab ly t o

obscure t h e i r indebtedness t o the i n s u r i n g pub l i c f rom the genera l pub l ic .

I n the case reserve f o r u r iexp i red r i sk , it was d iscovered t h a t some

cornpanies cont ravened the p rov i s ion o f t h e decrees o n section 22( i ) ( b )

o n the keeping o f a separate revenue account a n d t h i s rnade t h e calculat ion

o f the reserve impossible f o r such cornpallies.

calculat ion o f t h e reserve impossible f o r such companies.

The genera l observat ion f rom t h e analys is i s t h a t these reserves

which are impor tant t o t h e po l icy ho lders has received less a t ten t i on

from i n s u r e r s r a n g i n g from non disc losure o f informat ion t o mainta in ing

less reserves.

The hypotheses tested equa l ly showed enough s ta t is t ica l evidence

t o suppor t t he fac t t ha t i nsu re rs keep less reserves f o r u n e x p i r e d r i s k

.. and outs tand ing claims.

The implications o f keeping less reserve f o r u n e x p i r e d r i s k a n d

outs tand ing clairns inc lude : -

1 ) Since these reserves represent t h e l i ab i l i t y o f t he insurance

i n d u s t r y t o po l icy holders, mainta in ing less reserve cou ld h inde r

t h e i r ab i l i t y t o meet ma tu r ing obl igat ions. As ou ts tand ing claims

accurnulate therefore, t h e i n d u s t r y would ga in b a d image a n d th i s

would resu l t in dw ind l i ng patronage.

2 ) Again, as these reserves a r e usua l ly deducted before t h e f ina l

p r o f i t s a r e declared, mainta in ing less p rov i s ion has a tendency

t o o v e r state p r o f i t . Such ove r statement cou ld resu l t in payment

o f more d i v idend t o shareholders a t t h e det r iment o f po l icy holders.

CONCLUSION

The insurance industry, a n important sub-sector o f the f inancial

sector o f the economy, has not performed ef fect ively. The evaluation

o f some o f the i r operational areas carr ied out has revealed tha t the indus t ry :

- has not invested the huge funds available to it as

requi red i n government stocks. Th is action would h inder the

government from allocating such funds to p re fe r red sectors o f the

economy l ike ag r i cu l tu re and technology.

- has not prov ided as requi red for the i r l iabi l i ty to pol icy holders

as indicated b y less reserve for unexpi red r i s k and outstanding

claims maintained. Such inadequate provis ion could lead to

delay o r non-settlernent o f claims and over-stat ing o f p ro f i t s

available as d iv idend to shareholders to the detrirnent o f pol icy

holders.

- Although, in the area o f stabi l i ty as indicated b y the solvency

margin and contingency reserve maintained, the i r performance

was considered fair, i t i s important however, t o notep tha t -

solvency i s d i f ferent from l iqu id i t y and a solvent company could

be i l l i qu id and could be forced in to backruptcy b y credi tors.

Moreover, a company needs t o be l iqu id to be able t o sett le

claims prompt ly.

Therefore, it is crucial to the su rv iva l o f the insurance i ndus t r y

that clairris are sett led prompt ly and tha t they invest in less r i s k y

areas l ike government securities. Th is wi l l help to reduce the distress

which i s wide spreading in the i n d u s t r y and the non o r delay in

settlement o f claims which have been ident i f ied in the quest ionnaire

responses as weakening the i ndus t r y .

Since premium is the h ighest source o f income fo r the insurance

indus t ry , they should s t r i ve t o ensure t ha t the in terest o f po l icy holders

who pay the premiurn i s uppermost in t he i r p lans and actions. Th is

i s t o ensure an adequate in f low o f premium income always.

It may suff ice t o note t ha t t he laws regula t ing the operat ions o f

insurance business a re mostly aimed a t p ro tec t ing the po l icy holders.

I f insurance companies cont inue t o operate no t in conformity w i t h such

laws, the in terest o f pol icy ho lders and consequently the insurance

business would be jeopardized.

RECOMMENDATIONS

On the basis o f f i nd ings in the s tudy the fol lowing recommendations

are made:-

1. The superv isory au tho r i t y o f t he insurance i ndus t r y should

emphasis l i qu id i t y in addi t ion t o solvency in other t ha t t he

companies would be able t o set t le claims prompt ly .

2 . The superv iso ry au thor i t y should enforce the maintenance o f

requ i red reserves t o more adequately p ro tec t t he i n s u r i n y

pub l i c .

3 . The insurance superv isory board should emulate t he cen t ra l bank

o f Niger ia (CBN) in the s is ter bank ing i ndus t r y and clamp down

on any a i r i ng company and t h i s cou ld act as a d i t t e ren t t o o thers .

4 . The superv iso ry au thor i t y should l iquidate any distressed company

so as no t t o deceive t he i n s u r i n g pub l i c and lead t o avoidable

losses.

5. The insurance i n d u s t r y should embark on mass educat ion o f t he

pub l i c t o reduce t he low level o f awareness present ly mi l i ta t ing

against them so tha t they can widen t he i r market.

5 . 4 . SUGGESTIONS FOR FURTHER STUDIES

I t is suggested that fu r ther studies be made into the

following areas:-

1 . T h e extent to which the insurance supervisory board

monitors the compliance with the laws and follow u p actions.

2 . Predicting o f distress i n the insurance industry through

information i n financial reports.

APPENDIX 1

Department o f Accountancy, School o f Post Graduate Studies, Un ivers i t y o f Nigeria, Enugu Campus.

May, 1998.

Dear S i r / Madam,

QUESTIONNAIRE ON PERFORMANCE EVALUATION I N SERVICE ORGANISATIONS: CASE STUDY INSURANCE - INDUSTRY. -

Th is quest ionnaire is requ i red fo r the purpose o f a s tudy on the above ..topic. It i s pu re l y an acaderriic exerc ise aimed a t fu l f i l l i ng the requirernents fo r the award o f master o f Business Adrri inistration (MBA) in Accountancy.

Your objective answers t o the fol lowing questions are requ i red t o help the researcher meet her objective. Also, you r suggestions would help the researcher a r r i v e a t best conclusions which would be necessary in ma k i n g recornmendation on performance o f the insurance i ndus t r y .

You are assured that a l l inforrriation p rov ided would be t reated as confidential and names normally would not be mentioned.

Thanks immensely for you r co-operation.

Yours fa iu l fu l ly ,

Mrs. Agnes U. Ezenta.

APPENDIX 1

QUESTIONNAIRE FOR MANAGERS O F INSURANCE COMPANIES

Please t i c k )I in t h e a p p r o p r i a t e b o x p r o v i d e d aga ins t

t h e op t i ons Yes, No o r Don ' t know w h i c h b e s t answers t h e

quest ions . O n statements r e q u i r i r ~ g comment kindly fil l in y o u r

ob jec t i ve answer .

............................................. 1. Narne o f Company

2. Cornposi te l Non composite ...................................... 3. O f f i c i a l des ignat ion . . ..........................................

...................................... 4. Educat ional qua l i f i ca t i on

5. What d o y o u cons ide r t h e most ser ious obstacle in g e t t i n g a new

insu rance bus iness . ( a ) B a d co rpo ra te irnage 1-1 ( b ) Un in fo rmed i n s u r i n g p u b l i c 1-1 ( c ) I n e f f e c t i v e m a r k e t i n g -1

6. How o f t e n d o y o u al low more t h a n t h e o f f i c i a l d i scoun t r a t e in

ca lcu la t ing premium? (a ) V e r y o f t e n 1-1

( c ) No t o f t e n 1 7

7 . Do y o u g i v e b r o k e r s i ncen t i ve t o g e t new bus iness f rom them?

(a) Yes 1-1 ( b ) No [-I ( c ) Don ' t know 1-1

8 . What i s t h e ave rage number o f bus iness w r i t t e n by y o u r b r a n c h

p e r m o n t h in these yea rs?

(a) 1996 ( b ) 1997 ( c ) 1998

9. What i s t h e ave rage number o f claim not ices rece i ved b y y o u r b r a n c h

p e r month? (a) 1 - 5

( b ) 6 - 10

( c ) 11 - 15

10. What i s t h e approximate l e n g t h o f t ime it takes t o se t t l e claims?

(a ) One t o t h r e e months

( b ) T h r e e t o s i x mon ths

( c ) S i x mon ths t o one y e a r 1 7

1'1. How many s t a f f d o y o u have in y o u r b r a n c h ?

(a ) 1 - 5

( b ) 6 - 10

( c ) 11 a n d a b o v e

12. How many o f t h e s t a f f a r e p ro fess iona l l y q u a l i f ~ d ( t h a t is , a r e

A C l l h o l d e r s ) ? (a) N i l ( b ) 1 ( c ) 2

13. What i s t h e number o f f r a u d cases r e p o r t e d in y o u r b r a n c h in

t h a t fo l lowing years . (a ) 1996 ( b ) 1997 ( c ) 1998

14. Has y o u r company r e c e n t l y embarked o n c losure o f some b r a n c h e s

15. Has y o u r company r e d u c e d s ta f f s t r e n g t h ?

(a) Yes 1-1 ( b ) No 1-1 ( c ) Don ' t know 1-1

16. A r e y o u wel l acqua in ted w i t h t h e p r o v i s i o n s o f t h e i nsu rance

decree? (a) Yes I] (b) No 1-J ( c ) Don ' t know 1-1

17. Has your company received any warninglcommendation from the

insurance supervisory board.

( c ) Don't know 1-1

18. Has the insurance supervisory board carr ied out on the spot checks

i n your company?

1 9 . What do you consider the worst problem facing the Nigeria insurance

indust ry? ..........................................................

APPENDIX 11 INDUSTRIAL AVERAGES[ I

Sovency Margin 15% total premium

or

Solvency Margin W 19,668,000

Investiment in government securities 35% of total Assets

or

Reserve for unexpired r isk (non-marine) 45% o f premium

or

Reserve for unexpired r isk (marine) 25% of premium

or

W5,266 000

Reserve for outstanding c la i~n

Contingency reserve

APPENDIX Ill. BALANCHE SHEET EXTRACT OF SELECTED COMPANIES

FOR THE YEAR 1992 TO 1996

A l l . C O INS. PLC

Premium less re insurance

l nvestment

Cash in hand lbank

Total Assets

Insurance fund

BAlCO INS. PLC

Cross Premium

Reinsurance

l nvestment Cash in hand lbank

Total Assets

Reserve fo r unexp i red r i s k

Reserve f o r o u t s tand ing claim

LAW UNION E ROCK

INS. PLC

Cross Premium

Reinsurance

Net Premium

l nvestment

,Cash in h a n d l b a n k

Total Assets

lnsurance fund

lJEM INS. PLC

Premium less re ins

l nvestment

Cash in h a n d l b a n k

Total Assets

I nsurance fund

W'OOO W1O00

321,105 500.000

794,565 1,221,987

47,860 89,900

11505,81 1 2,194,829

71,956 102,725

APPENDIX Ill BALANCE SHEET EXTRACT OF SELECTED COMPANIES

FOR THE YEARS 1992 TO 1996

N'000 PRESTIGE ASS. PLC

Premium less reinsurance 24,314

l nvestment 67,997

Cash in hand lbank 4,876

Total Assets 86,454

Insurance fund 16,041

UNlC I'Ns. PLC

Premium less reinsurance 133,829

Investment 160,511

Cash in hand lbank 21,980

Total Assets 325,696

Reserve fo r unexp i red r i s ks 57,025

Reserve f o r outs tanding claims 75,776

W ' O O O

38,040

96,103

14,190

144,926

23,922

181,040

204,967

15,987

420,573

77,802

105,166

W ' O O O W ' O O O

53,048 67,060

129,175 197,443

14,528 27,361

186,687 272,236

29,103 37,602

W ' O O O

86,652

241,686

29,835

236,688

52,843

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