- We’re fulfilling our obligations, says firm
In the fading glow of financial stability, African Alliance Insurance Plc teeters on the brink of technical insolvency, leaving it unable to uphold its fundamental pledge of honouring claims. A thorough investigation unravels a protracted struggle within the company, transforming its premises into a battleground where beleaguered policyholders engage in arduous conflicts to secure rightful claims and receive payouts upon the maturity of their savings policies. This grim scenario is not a recent development; it has persisted for over a decade, marked by relentless losses, precarious cash flow, escalating bad debt and a growing inability to meet current liabilities. Policyholders find themselves caught in the crossfire, prompting a visit from our correspondent to the company’s premises, unveiling firsthand the plight of those entangled in African Alliance Insurance Plc’s financial predicament. OMOBOLA TOLU-KUSIMO reports
A disconcerting analysis of critical performance metrics and indicators has brought to light a distressing revelation about the financial health of African Alliance Insurance Plc – it stands on the precipice of technical insolvency, unable to fulfil its fundamental obligation of honouring claims. The investigation conducted by The Nation unveils a protracted struggle within the company, transforming its premises into a battleground where policyholders find themselves entangled in arduous conflicts to secure rightful claims and receive payouts upon the maturity of their savings policies.
This grim scenario is not a recent development but has persisted for an alarming span of over a decade. The company’s financial trajectory has been marred by a relentless series of losses, a precarious cash flow, escalating levels of bad debt, and a growing inability to meet its current liabilities. The repercussions of this financial turmoil have reached policyholders who now find themselves grappling with the repercussions of the company’s precarious financial standing.
In response to a surge in complaints and a public outcry regarding the non-payment of claims and savings policies, our correspondent embarked on a visit to the company’s premises. This investigative journey provides firsthand insight into the plight of policyholders caught amid African Alliance Insurance Plc’s financial predicament. The investigative visit exposed a disheartening scene as beleaguered policyholders besiege the premises of African Alliance Insurance Plc at 54 Awolowo Road, Ikoyi, Lagos, daily. Their collective demand resonates with the urgency for the company to settle their unpaid claims and savings policies. Adding a layer of tension to this already fraught atmosphere, the company has stationed a policeman at its front desk, a move that further fuels the flames of frustration among the aggrieved policyholders.
The newspaper’s observations extended beyond the mere presence of security personnel. The front desk staff, tasked with interfacing with customers, were noted for their hostility, rudeness, and lack of professionalism, exhibiting behaviour that contravenes the ethos of customer service. Of particular concern was the propagation of misinformation, with staff erroneously asserting that the waiting period for claim processing, from submission to payout, spans an astonishing 50 working days. This stands in stark contrast to the regulatory mandate set by the National Insurance Commission (NAICOM), which stipulates a more reasonable timeframe of 48 hours.
The unsettling scenario took an even more alarming turn when the deployed policeman not only endorsed but actively expounded on this misleading narrative on behalf of the company. When confronted by our correspondent, who assumed the role of an aggrieved policyholder seeking clarification, the policeman responded with aggression, issuing threats and displaying an unwarranted readiness to retaliate against any probing inquiries.
Incorporated as a private limited liability company in 1960, African Alliance Insurance Plc underwent a transformative journey, transitioning to a public liability company in June 2008 through a successful private placement exercise. This pivotal move culminated in the company’s listing on the Nigerian Stock Exchange on September 17, 2009. Currently, African Alliance Insurance Plc holds a noteworthy position in the industry, boasting 100 per cent equity ownership of Axiom Air Limited, a cargo airline company, and a substantial 98 per cent stake in Ghana Life Insurance Company Limited, a prominent life insurance entity in Ghana.
The core focus of the group revolves around the provision of life assurance and pension services, catering to both corporate and retail clientele in Nigeria and Ghana. The financial performance of the group in 2021 showcased a commendable profit after tax of N2.4 billion, with the company separately reporting profits of N2.8 billion. These positive trends continued from the preceding year, with the group and company achieving profit-after-tax figures of N1.56 billion and N1.96 billion in 2020. Importantly, these profits have been prudently transferred to retained earnings, reflecting the company’s commitment to sustained financial health and stability.
Deloitte’s statement on going concern status
As of the financial year ending December 31, 2021, African Alliance Insurance Plc faces significant challenges flagged by its auditor, Deloitte. The identified going concern matters paint a concerning picture, showing a negative regulatory solvency margin of 713 per cent, a stark contrast to the required 100 per cent position mandated by the regulator, the National Insurance Commission (NAICOM). This critical financial metric underscores the company’s technical insolvency, raising alarm about its ability to meet regulatory obligations and fulfil its financial commitments. The auditor’s report sheds light on the urgent need for remedial actions to address the severe financial strain and safeguard the company’s viability.
“The company’s solvency margin is below the regulatory requirement as stated in the Insurance Act CAP I17, LFN 2004 as it reported a solvency margin deficit of N12.3 billion for the year ended December 31, 2021 compared to a minimum of N2 billion required for life assurance companies. Similarly, the total admissible assets of the company less net insurance and investment contract liabilities amounted to a deficit of N23.2 billion as at December 31, 2021.”
The company’s financial report as of December 31, 2021, showed a concerning negative shareholders’ fund of N4.29 billion. Deloitte’s assessment, taking into account the company and group’s performance as well as financial statements, highlights critical issues, such as a deficit in the solvency margin and the inadequacy of regulatory admissible assets to cover insurance liabilities. Collectively, these indicators signify a material uncertainty, casting significant doubt on the company’s ability to sustain itself as a going concern.
“The board of directors assessed its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future based on the following action plans that it is currently executing and will execute in the next 12 to 15 months.”
The independent auditor noted that the company has taken certain actions in response to the regulatory solvency and liquidity breaches. However, Deloitte emphasised that these actions might not be adequate to fully resolve the identified issues. Furthermore, the auditor expressed uncertainty regarding how the regulatory body, NAICOM, will respond to the persistent non-compli ance with regulatory ratios.
Action plans
Deloitte reported that the Board of Directors unequivocally affirms the implementation of several action plans currently progressing through different stages of execution. The directors express confidence that these strategic initiatives will empower the company to rectify its standing and return to a going concern status without impediments. The comprehensive action plans include: Launching a rights issue of N2 billion shares for existing shareholders; attracting fresh capital through investment from new stakeholders; securing the renewal of overdraft facilities; executing the disposal of the company’s interest in Ghana Life Assurance Limited; initiating the sale of FGN bonds. Additionally, other action plan considerations involve: Acquiring dividends from PAL Pensions; focusing on the growth of Premium Income; and implementing de-risking measures for all new business ventures.
The auditor said: “The directors have appointed relevant professional advisors to assist with the relevant processes of obtaining regulatory approval for a rights issue as soon as possible. However, the process is hinged on the conclusion of the FY2021 financial statements. Of significant impact is that Conau Trade and Investment Limited, the company’s majority shareholder, has underwritten to take on 100 per cent of the rights in issue when the right issues have been approved by the regulators and made available to the shareholders. Shareholders of the company at the last Annual General Meeting (AGM 2020) had given their consent and approval to the offering. This is, however, subject to the final approval of the regulators (National Insurance Commission (NAICOM), Financial Reporting Council of Nigeria (FRCN) and Securities and Exchange Commission. We are confident that the regulators will give their nod to the offering.
“On injection of fresh capital by new investors, the Board of Directors are at the final stages of concluding an arrangement with an independent investor with plans to inject about N7 billion into the company as fresh capital. However, the process involves the conduct of due diligence on the financial statements of the company. The above-proposed capital injection has been approved by the shareholders at its last AGM in four phases which include Transaction preparation/Investor engagement; Documentation/Early Regulatory engagement; Phase III – Regulatory filings; and Allotment and listing. The Board of Directors has received the special resolution of the shareholders to proceed with the action plans and currently in progress. However, the success of this transaction is not under the control of the directors therefore there is material uncertainty as to the probability that this transaction will succeed.”
Deloitte showed in its report that any business failing to align with its predetermined risk appetite is not accepted. This criterion has become evident in the frequency of claims recorded in recent months. The board remains optimistic that with the ongoing risk assessment process, it will witness added value and a notable reduction in claims payouts. While the outlined actions are expected to address the liquidity challenges faced by the company, its crucial to note that they may not fully alleviate the deficit in the solvency margin, as highlighted by the auditor.
“Material uncertainty exists for each of these plans because of events that might be beyond expectations of the directors. There can be no assurance that the company will be successful with these strategic initiatives. If such initiatives and plans are not successful, the company and group may be forced to limit its business activities or be unable to continue as a going concern, which will have a material adverse effect on the operations and financial performance of the company. While the directors are confident that these action plans will be successful and have prepared these financial statements on a going concern basis, material uncertainties exist that may cast doubt on the company’s ability to continue as a going concern,” the auditor said.
It is important to emphasise that when a company is no longer considered a going concern, it signifies negative trends, such as poor cash flow, the inability to secure credit or borrow, sustained losses, escalating levels of bad debt, challenges in meeting liabilities (such as servicing loan repayments), and the presence of existing or impending legal actions against the company, among others.
Management’s reaction to going concern status
Joyce Ojemudia, the managing director, has shown that the directors have outlined specific measures and strategies to rectify the negative position, steering the company and the group towards profitability and an enhanced solvency position. However, as of December 31, 2022, the company grappled with a negative insurance solvency margin of N4.04 billion, a stark contrast from N12.3 billion in 2021. Ojemudia acknowledged that the total admissible assets, excluding net insurance and investment contract liabilities, reflected a deficit of N29.8 billion in 2021. She highlighted that the solvency margin fell below the two billion naira threshold required for life insurance by NAICOM. It’s noteworthy that the company has not distributed dividends to shareholders in the past decade.
In the financial results of the group for the year ending 2022, there was a five per cent decline in premium income compared to the previous year, 2021. The group attributed this reduction to the challenging operating environment and the inability to consolidate the audited financial statement of its subsidiary, Ghana Life. However, there was a three per cent increase in Net Premium Revenue due to the group’s robust performance. Despite this, the group experienced an underwriting loss of N4.7 billion, a stark contrast to the N8.1 billion profit recorded in the preceding year, primarily due to unforeseen changes in contract liabilities.
The investment income also took a hit, decreasing by 49 per cent as of December 31, 2022. This decline was attributed to a market-wide crash in interest rates, impacting the overall investment income of the group. Operating expenses of the group, on the other hand, witnessed a notable 25 per cent reduction for the year under review compared to the previous year, 2021. This reduction was a result of the group’s cost-cutting measures. Ultimately, the group reported a loss after tax of N2.9 billion, representing a 220 per cent decrease from the N2.4 billion profit recorded in the previous year.
In 2022, the company enlisted the services of Messrs. Ukwuegbu, Ogbeleje & Co. as its auditor. The auditor, Mr. Ukwuegbu, who signed the report on the Valuation of Insurance and Investment contract liabilities, said the company is burdened with significant insurance and investment liabilities.
He said: “The measurement of insurance and investment contract liabilities involves judgment over uncertain future outcomes as mortality, morbidity, lapse and surrender, among others and economic assumptions, such as interest rates, return on investments which are the ultimate total settlement value of long-term liabilities, including guarantees provided to policyholders. The insurance and investment contract liabilities of the group was N45.73 billion and for the company N43.97 billion, representing 96 per cent of the overall liabilities of the company.”
Unpaid claims and policy holders’ dilemma
In a more detailed examination of African Alliance’s financial results, it was shown that the company bears claims liabilities under Life Business amounting to N43 billion, with annuity claims reaching N29 billion in 2022. The critical point to emphasise is that being technically insolvent, the company lacks sufficient cash flow to cover these substantial claims, leading to concerns about the company’s underwriting practices and its management of assets and liabilities.
An aggrieved policyholder, who visited the company to demand her money, shared that her colleagues who invested in the same savings policy had informed her that unless she created a scene at the company, her payment would not be processed. Consequently, she decided to make her presence felt, and after a period of confrontation, she was eventually attended to by the staff. Leaving the office with a smile, she seemed to have achieved the resolution she sought.
The discontent among policyholders at African Alliance manifested in various scenes as numerous clients demanded the release of their funds. The presence of the unnamed policeman only fuelled the frustration among policyholders, who vehemently resisted any form of intimidation or harassment. Bayo, one policyholder, shared his frustrating experience with the company’s staff since the maturity of his savings policy and his subsequent payment requests. Khalid, holding a Takaful Plan policy with plan number MO4965, expressed the hardship he faced after investing his life savings, only to face refusal from the company upon maturity.
Folake, with policy number M05731, is awaiting payment of over N250,000, while Adesina, holding policy number M05715, contributed N20,000 monthly for 19 months, totalling N380,000 without any interest accrual. The accumulation of such grievances among policyholders underscores the broader issues plaguing African Alliance. Lamenting, he said: “I started the Takaful Savings policy with African Alliance (AA) in May 2021, with a monthly contribution of N20,000. I saved for 19 months, which amounted to N380,000. I obtained, filled, and submitted my claim form AA in November, 2023. Ordinarily, payment of a claim does not take more than two weeks. I know this because I have been saving with them for years. As I noticed that this payment was not forthcoming, I went to their corporate head office where they told me that they did not see my claim form. They asked me to re-submit it to their mail, which I did immediately. They promised me that they would get back to me in the next two weeks. I am still waiting for them,” he noted.
In the same manner, Mrs Adebanjo Fausat ldowu purchased two policies with numbers TO5006 and MO5532. She said the first policy started in January 2020 at the rate of N10,000 and the second policy started in January 2021 at the rate of N10,000.
“My first payment is N415, 730 and my second payment is N350,435 both amounting to N766,165. I requested my money in June, 2023 and I only got a response from them in December.
“I was in their office in the first week of January to create a scene because I learnt that is the only way I can get them to pay me. They called me in and appealed that they would pay me in one week so I left. Unfortunately, till date, they have not paid me. I am appealing to the newspaper to help me to retrieve my money from the company,” she cried.
‘We have been fulfilling claims for our policyholders’
On the surge of policyholders demanding their funds and the apparent dissatisfaction, African Alliance’s Managing Director, Joyce Ojemudia, responded: “I would like to state that we have been consistently fulfilling claims for our policyholders. The information that we are not paying claims is not a factual representation of our company’s position. We have paid about N7 billion to our policyholders in one year.”
However, Mrs Ojemudia provided insight into the company’s solvency status in the 2022 financial report, saying: “The solvency level at the valuation date was 302 per cent for the company, compared to 713 per cent in 2021. The company’s assets do not match liabilities. Hence, asset admissibility requirements and localisation rules in Section 25 of the Insurance Act CAP I17 LFN 2003 were not met. The life fund shows a deficit of N29.8 billion as of December 31, 2022.”
The Board of Directors comprises the Chairman, Dr Anthony Okocha–Sylva Ogwemoh (SAN), Managing Director/CEO Mrs. Joyce Ojemudia, Executive Director, Mrs. Olabisi Adekola, and Non-Executive Directors Alh. Abatcha Bulama, Dr. Adiele Ekechukwu, Sir. Macauley Atasie, and Dr. Alex Nwuba.
The response from NAICOM to the company’s challenges and the status of the N7 billion fresh capital injections remain unclear at this time. In the 2022 result, the company said: “The Board of Directors is at the final stages of concluding arrangement with an independent investor with plans to inject about N7 billion into the company as fresh capital. However, the process involves the conduct of due diligence on the financial statements of the company. The above proposed capital injection has been approved by the shareholders at its last Annual General Meeting, and is in four phases, starting with Transaction preparation/Investor engagement; Documentation/Early Regulatory engagement; Regulatory filings; and Allotment and listing.
“The Board of Directors has received the special resolution of the shareholders to proceed with the action plans currently in progress. However, the success of this transaction is not under the control of the directors, therefore there is material uncertainty as to the probability that this transaction will succeed.”
On the rights issue of N2 billion shares to existing shareholders, “the directors have appointed relevant professional advisors to assist with the relevant processes of obtaining regulatory approval for a rights issue as soon as possible. Of significant impact is that Conau Limited, the company’s majority shareholder, has underwritten to take on 100 per cent of the rights in issue, when the right issues have been approved by the regulators and made available to the shareholders.
“Shareholders of the company at the 2022 Annual General Meeting (AGM) had given their consent and approval to the offering. This is, however, subject to the final approval of the regulators, such as NAICOM, Financial Reporting Council of Nigeria (FRCN) and Securities and Exchange Commission,” the report read.
Meanwhile, the Nigerian Insurers Association (NIA) has said it is working assiduously to redeem the image of the industry and restore public trust and confidence.
The Chairman, Mr. Segun Omosehin said one of the challenges the industry is facing is the issue of public trust and confidence, saying NIA is working hard to enhance the industry’s credibility by encouraging members to pay claims promptly.
“We discuss this extensively in all our meetings at the governing council. We have descended on members when we hear report of unpaid claims. This led to the publications we have done currently. We have done three publications where we are asking the public with genuine unpaid claims to come forward for payment,” he said.
