June 21, 2010
National Insurance Commission (NAICOM) has discovered accounting fraud in insurance annual reports. The commission has found out that most insurance companies failed to disclose their gross premium earned, reinsurance premium incurred, gross claims incurred and gross claims outstanding.
The regulatory body has also discovered that insurance companies commit a lot of errors in their computations of solvency margin and above all have poor interpretation of the Insurance Act 2003, amongst others.This lack of adequate financial disclosure by insurance companies has caused NAICOM, in time past, delays in approval of insurance accounts and at one point in time caused companies to cancel their Annual General Meetings (AGMs) over its refusal to grant approvals to companies accounts. These discoveries have led the commission to cutting off all unnecessary delays in approval of insurance companies accounts to the barest minimum time.
Following this development NAICOM said in a circular to insurance and reinsurance companies that it did not wish to exceed its approval of companies’ accounts beyond 30 days from the day of request.Deputy Commissioner for Insurance (Finance & Admin), Mr George Onekhena, said that barring any undue delay from insurance and reinsurance companies as a result of non_compliance to standard rules on accounting reporting, the regulatory body expect to grant approval to companies within 30 days from the day the companies’ request reach the commission.
According to him, “the approval of the commission is expected to be granted within days, however, it may exceed the 30 days due to queries arising from either insufficient information or accounting practices that are inconsistent with either legal or regulatory requirements.”Onekhena stated further, “In order to minimise the time within which approval is granted and to obviate the uncertainties implicit in current approval processes arising from non_compliance of laid down reporting standards, the commission found it necessary to issue this guidance circular for immediate compliance by all insurance and reinsurance companies.”
He directed that insurance companies should at all times provide for unexpired risks, claims, contingencies and other reserves made and a margin of solvency is maintained at all times, insurance and reinsurance companies are required to make annual returns to the commission of their statements of accounts for approval before publishing their balance sheets, profit and loss account and distribution of any dividend.He said that many insurance and reinsurance companies have not been disclosing their accounting policies on items that are significant for proper understanding of financial statements issued by them.
For proper understanding and interpretation by users, NAICOM’s circular to companies directed that, Insurance and reinsurance companies should disclose the accounting policies in reporting gross premium earned including basis for determination of unexpired risk; Reinsurance premium cost including basis of accounting for proportional and non_ proportional elements and determination of prepaid reinsurance premiums; Claims cost incurred including basis of accounting for salvage recoveries, subrogation rights and reinsurance recoveries as well as reinsurer’s share of outstanding claims and Acquisition cost including the basis for deferral of acquisition cost in their annual accounts and reports.