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Continental Re Provides N1.4bn for Toxic Assets


The provisioning for capital market related and other toxic assets that have been impacting negatively on the profit of banks, last week pushed Continental Reinsurance Plc into the red.

The only listed reinsurance firm reported a loss of N307 million for the third quarter ended September 30, 2009 compared with a profit of N180 million in the corresponding period of 2008. Prior to last week, some insurance companies led by Cornerstone Insurance Plc, had reported losses due to provision for capital market investments.

Continental Reinsurance Plc became the latest victim of the negative impact of the capital market meltdown. The company posted gross earnings of N5.301 billion in 2009, showing an increase of 35 per cent above the N3.931 billion in the corresponding period of 2008. However, a loss of N307.2 million was recorded compared with profit after tax of N180.61 million in 2008.

The Board of Directors explained that the performance had been impacted negatively by increased provisions amounting to N1.417 billion. Specifically, the company made a provision of N785 million on technical reserves in line with international best practices and debtors balances.

In addition, N632 million was made for value of quoted shares that have suffered significant decline. “These provisions are aimed at improving business and asset quality and consequently profitability in the long,” the company said in a statement to the Nigerian Stock Exchange (NSE).

Insurance companies put substantial portion of their long-term funds in the capital market. However, the current downturn in the market has also affected their operations negatively. This prompted the insurance companies to call on the Federal Government to inject funds into the sector to save it from imminent collapse like in the banking industry.

The Chairman of Nigeria Insurers Association (NIA), Mr Wole Oshin, was last November quoted as saying: "The insurance industry did not have to collapse before it could get a bailout rather, the bailout to the sector should be prompt to enhance capacity of insurers and also strengthen the sector further."

He said the toll on investments with diminution in value of shares and in some cases, loss of deposit to distressed banks and increase in fraudulent claims paid by insurers, had eroded shareholders' funds of insurers and crippled their investment income.

He added that apart from injecting bailout funds, the authorities should concentrate on supervision of insurance companies as against supervision of products offered by insurance companies, which is what currently obtains.

The Commissioner for Insurance, Mr. Fola Daniel, had recently stressed that the mode of sectoral regulations must change, stressing that there will be need for regulators to watch carefully what their licensees are doing, not just in their core sectors but also their subsidiaries.

He said: "Whilst governments consider various bailout options, I am of the opinion that uncoordinated actions will not totally solve these problems, but may in fact lead to the resurgence of economic nationalism."

He said the current global crisis has shown how small the world is, and that locally, it has shown that beyond the price of oil, problems in other economies can cripple our economy too.

(Source: ThisDay) 

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