With time running out on underwriters and insurance firms to become IFRS compliant, the quest to beat the compliance deadline set by NAICOM may drive the already struggling insurance sector to the brink, writes MESHACK IDEHEN.
It is less than three months to the end of the deadline set by the National Insurance Commission (NAICOM), for insurance operators to begin submitting audited accounts that are International Financial Reporting Standard (IFRS) compliant.
As things presently are and with only about four firms out of more than 60 that have sent in drafts on how to beat the deadline set by NAICOM, observers and insurance analysts said danger signals may be looming ahead for the sector.
This potential danger, according to Insurance expert, Mr. Paul Igbinovia, is because stakeholders in insurance business in Nigeria are expecting some form of action to be taken by the sector's regulators against insurance companies that fail to comply when the deadline expires, thereby putting more pressure on an already wobbling and largely underperforming sector.
Making quick reference to the statement credited to the President of the Institute of Chartered Accountants of Nigeria (ICAN), Mr. Doyin Owolabi, advising NAICOM to take a more gradual approach to the implementation of International Financial Reporting Standards (IFRS), the insurance expert said it was obvious that many insurance firms will come under the hammer of NAICOM.
According to Igbinovia, "it is when the deadline set by NAICOM on the issue expires and many insurance firms or some of their operations are suspended that the full import of the sector's inability to become IFRS compliant will dawn on the economy".
However, NAICOM in trying to douse some of the tension insurance operators are having over their firm's inability to become IFRS compliant, coupled with making clear their doubts about its (NAICOM) ability to successfully see the IFRS compliant project to a successful ending, said the commission has taken steps to improve on the status of IFRS as a national requirement, and has also made good strides to facilitate a seamless compliance by insurance institutions with the Nigeria roadmap for IFRS conversion as approved by the Federal Government.
According to the insurance regulators, the deadline for the adoption of IFRS is based on the IFRS Conversion roadmap approved by the Federal Government, therefore it goes without saying that NAICOM should insist on full compliance by relevant insurance entities with the requirements of the roadmap document.
Further making clear it has done what it needs to do for operators in the eventuality it has to apply sanctions irrespective of the implications of the sanctions on the sector, NAICOM also explained that in order to facilitate compliance by insurance firms, that the commission has implemented some initiatives designed to create awareness and address challenges that could arise from transactions, circumstances and/or issues peculiar to the Nigerian insurance industry.
"To ensure compliance, the commission issued a guideline at the end of the year 2010, specifying returns that insurance companies were expected to make in 2011.
This was to provide a basis for the monitoring of those activities required of entities cutting over from national to international standards in 2012. "Besides, in October, 2012 based on the outcome of the workshop held in 2011, the commission issued a draft document on the harmonisation of IFRS accounting choices and its regulatory requirements in the wake of the full adoption of IFRS.
"Again, in January 16, this year, the commission presented a draft IFRS compliance reporting format based on the requirement of the Insurance Act, 2003, Financial Reporting Council Act 2011 and relevant guidance papers issued by the International Association of Insurance Supervisors (IAIS) on the subject and had a 3-hour interaction on same with the CFOs of insurance companies", NAICOM explained.
Despite these explanations, the fact that only four insurance firms have made attempt to beat the deadline is discouraging, said Insurance expert and Executive Director of Conrad Clark Nigeria Limited, Mr. Joachim Adenusi. He said the fact that no company has submitted "full" IFRS compliant account is indeed worrisome and portend greater long term danger for the sector, considering that soon, international companies will find it challenging to do business with firms within and outside the insurance industry that are not IFRS compliant.
Adenusi added that organisations and individuals that have business with insurance firms that are not IFRS compliant are right to be worried, since the sanctions expected to be meted out to them are expected to cripple some of their activities, particularly those that will have to do with international businesses and foreign investments.
NAICOM, it would be recalled had about three months ago, set the deadline for insurance firms operating in Nigeria to become IFRS compliant, despite the reluctance of many operators due to they said was the peculiar nature of the Insurance sector in Nigeria.
The operators had also complained that the process for becoming IFRS compliant was tedious and cumbersome and very difficult for many of them to meet, with other operators adding NIACOM,s return of three insurance companies account to them for "corrections and adjustments" a clear indication of how difficult the process is.
Director of Supervision at NAICOM, Mr. Nicholas Opara, told journalists recently in Lagos that the drafts sent by three insurance firms have been returned to the companies as there were still areas to be worked on after necessary observations were made by the commission.
According to Opara, "At the moment, no company has submitted full IFRS compliant account. It is only three companies that have sent in their drafts which we have returned to them, as there are still many things they are yet to get right. The 2012 reports are special because it is different from what we have been doing in the past,"
National Mirror