Joy Agwunobi
The National Insurance Commission (NAICOM) has introduced new regulations governing annuity business, set to take effect from February 1, 2025.
This initiative is aimed at streamlining and enhancing the management of annuity portfolios within the insurance sector.
An annuity is a financial agreement between an individual and an insurance provider, where the insurer commits to making periodic payments to the individual, either immediately or at a later date. These payments can be structured as a lifelong fixed income in exchange for a lump sum or a series of contributions.
In a circular addressed to managing directors and chief executive officers of life insurance companies, NAICOM outlined additional regulatory measures designed to strengthen industry practices. The circular, signed by A.I. Adamu, Director of Innovation and Regulation, emphasises the importance of aligning annuity business operations with best practices.
One of the key provisions mandates that insurance firms must employ at least one qualified actuary responsible for conducting asset-liability matching (ALM) analysis and ensuring its application within the company’s investment strategy.
The directive further states, “An insurer that does not have an in-house qualified actuary shall make arrangements for a qualified one from an external actuarial firm to take on the ALM responsibility on its behalf for an interim period of no more than two years, subject to the Commission’s approval for an extension for two or more years thereafter.”
Additionally, the appointment of either an in-house or external actuary must receive prior approval from the commission. The actuary will be required to sign off on all ALM reports in accordance with paragraphs 3.4.3, 7.3.1, and 8.1.5(m) of the Prudential Guidelines.
Insurance companies are required to submit ALM reports quarterly, detailing compliance actions based on specific analyses as guided by the NAS Standards of Actuarial Practice.
The directive specifies, “ALM Reports: Companies are required to submit ALM reports to the commission quarterly, with requirements outlined in the circular such as required actions by insurers depending on the results from specific analysis applying guidance provided in the NAS Standards of Actuarial Practice.”
“The ALM report shall be submitted to the Commission not later than 15 days after the end of every quarter in line with the reporting requirement stipulated in paragraph 3.4.3 of the Prudential Guidelines.”
Furthermore, NAICOM has set additional reporting obligations for companies managing substantial annuity portfolios. It states, “Without prejudice to paragraph seven of this circular, where the annuity portfolio of an insurance company has more than 1,000 (one thousand) annuitants or the portfolio is valued at N5bn or more, the company shall submit to the commission the prescribed ALM report monthly, not later than the 15th of the succeeding month.”
The board of directors of each insurance company is tasked with ensuring full compliance with these new regulations. NAICOM has also stipulated that insurers unable to meet the financial requirements imposed by the circular must transfer their annuity portfolio to a more capable insurance provider within 180 days.
With these new measures, NAICOM aims to foster greater transparency, accountability, and stability within the annuity business segment, ultimately strengthening policyholder confidence in the sector.
