Growing interest by retirees taking up annuity for retirement benefits as provided in the Pension Reform Act 2014 is resulting in the monumental growth in life business of insurance companies, BusinessDay investigations reveal.
This development which has led to increase in premium of life companies offering annuity has seen the industry life premium grow by 37 percent as at the end of 2014.
Oye Hassan-Odukale, managing director, Leadway Assurance Company Limited, who confirmed the growth in life business and contribution of annuity to his firms total premium, said the Pension Reform that gave birth to this product is a blessing to the insurance industry.
Oye said out of its companies total premium income in 2015, about 60 percent of it is from life business, out of which 50 percent is retail, which is where annuity falls.
“At the beginning of Pension Reform, there was no guideline on the implementation of annuity; so many retirees opted for Programmed Withdrawal that was available to them. But after a joint guideline by the National Pension Commission and the National Insurance Commission on annuity business, many retires started taking annuity as a retirement benefit option,” Oye said.
The latest industry figures reveals that as at July 2015, no fewer than 21, 211 retires have chosen annuity with about N104.52 billion so far transferred to the insurance companies by Pension Fund Administrators.
Section. 7 (1a) of the Pension Reform Act 2014 states that an employee on retirement shall procure Annuity for Life Policy or Programmed Withdrawal.
The lump sum for the procurement of Annuity for Life Policy or Programmed withdrawal must have been accumulated through a series of employer/employee’s contributions into the Retirement Savings Account of the retiring employee throughout his/her working career.
Annuity for Life Policy is a retirement instrument option for retiring employee offered by a Life Insurance Company licensed by the National Insurance Commission (NAICOM).
Annuity for Life as is popularly called is a type of annuity contract that provides, in return for a Lump sum, a monthly or quarterly payment starting immediately after retirement and continuing for the rest of the retiree’s life.
The contract is often purchased by retiring persons who want an income that is guaranteed to last for the rest of their lives, no matter how long that might be.
Analysts say this is likely to grow over time given that a lot of the retirees under the Contributory Pension Scheme were beginning to be more aware of the benefits of annuity, unlike at the beginning of the reform when they did not understand they had a choice to make between the available options.
According to the African Insurance Barometer, launched recently by the African Insurance Organisation, individual annuity business is the fastest growing personal line business particularly in Sub-Sahara Africa including Nigeria.
Sunday Thomas, director general, Nigerian Insurers Association confirms the rise in life business, saying that the contribution of life portfolio to the market premium is on the increase equalling about 37 percent in 2014.
According to Thomas, attention must be given more to the development of the retail insurance market while waiting for corporate accounts to rebound.
“For a sustainable Nigeria insurance industry, the market must continue to enhance the way it is valued by the consumers and other stakeholders; step up its consumer education and public awareness of the vital importance of insurance as a social and economic transformation mechanism; and keep developing innovative solutions required by consumers to manage risks in an increasingly complex and uncertain environment,” Thomas said.
The Nigerian insurance industry presents a lot of growth opportunities due to the low insurance penetration.
Wale Akinrotimi, head, Technical Operations, Royal Exchange Prudential Life Assurance speaking on benefits of annuity explained that Annuity pays the retirees as long as he/she lives.
“Just imagine a Mandela example. If he had retired at age 50, because he lived for 94 years, he would have received annuity income for 44 years after retirement till death, ” Akinrotimi said.
“Annuity for Life Policy has a guaranteed period of ten (10) years. The implication of this is that if the retiree dies a year after retirement and he/she has just received one (1) year, the remainder of the retiree income for nine (9) years shall be paid to a named beneficiary,” Akinrotimi said.
According to him, this has resulted in monumental growth in life business, particularly the retail segment.
On investments being made by insurance companies to handle the growth of their life business, Oye of Leadway assurance said the firm has invested substantially in developing annuity products in terms of human capital, marketing and innovative products.
“We have in our employment expatriate actuary and other staff that are dedicated to driving our annuity business,” Oye said.
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