‘Why insurance coy divests from pension subsidiaries’
The idea of mitigating risks and curtailing losses to the barest minimum begins from the insurance industry, and only crosses into the pension space on the need for retirement planning.
For this reason, it was not uncommon over the years to have insurance companies with pension subsidiaries.
However, controlling the wealth of people is no easy task, and crossover companies are beginning to think it might not be worth it competing with the big guns; that is, the pension fund administrators (PFAs) that already cater to the majority of Nigerians.
Recently, AXA Mansard Insurance Plc, announced the divestment from its subsidiary, AXA Mansard Pensions Limited. Upon obtaining the shareholders’ approval during Extra Ordinary General Meeting, the firm commenced the process by appointing Messer Rand Merchant Bank as the Financial Advisers, while Aluko and Oyebode acted as the Legal Advisers for the transaction.
Upon completing the bid process, Eustacia Limited (a member of the Verod Group), was selected as the preferred bidder, and thereafter, along with the minority shareholder entered into a sale and purchase agreement with Eustacia Limited.
This is to divest the entire issued ordinary share capital of AXA Mansard Pensions comprising of 60 per cent shareholding (2,067,672,000 shares) held by AXA Mansard Insurance Plc, and 40 per cent shareholding (1,378,448,000 shares) held by the minority shareholder.
The divestment has received letters of No Objection from the National Insurance Commission (NAICOM), National Pension Commission (PENCOM), and the Federal Competition and Consumer Protection Commission (FCCPC). The completion of the divestment is subject to the receipt of the final approval from PENCOM.
Commenting on the divestment, the Chief Executive Officer, AXA Mansard Insurance, Kunle Ahmed, said: “The transaction marks a new step in AXA´s broader strategy to focus on and grow our Life, Property and Casualty, and Health businesses across all its geographies.
“The AXA Group sees great potential in the Nigerian insurance market, and believes AXA Mansard is ideally placed to capture these opportunities, thanks to its market leadership positions in Health Insurance, Property & Casualty and Life Insurance. We plan to capitalise on our successes to further build our capabilities and continue to deliver the best offers & services to our customers.”
Speaking about the transaction, the Chief Executive Officer, AXA Mansard Pensions, Dapo Akisanya, said: “We are confident about Verod’s strong commitment to providing the company with the requisite support to actualize our promise to our clients and stakeholders
“As a West African investor with deep local knowledge and presence, we look forward to harnessing Verod’s unique, and world-class attributes towards setting new standards in the industry. Verod has the capacity, expertise, and network, to support the business to continue to expand and to provide innovative solutions for the benefit of our current and future clients.
“We strongly believe that this is the ideal time to enter the market and that AXA Mansard Pensions provides an excellent beachhead from which to establish a consolidated position and gain market share,” said Eric Idiahi, Partner at Verod.
“The National Pension Commission continues to demonstrate a strong commitment to raising standards within the industry and driving pension penetration rates in the short to medium term. We believe that sustaining AXA Mansard Pensions industry-leading investment returns, excellent customer service, as well as, expanding distribution network and product offerings will facilitate the capture of the considerable growth potential within the Nigerian pensions industry, particularly following the opening of the transfer.”
The sale follows other similar steps taken by the AIICO Insurance Plc, which divested its majority stake in AIICO Pension Managers Limited. FCMB Pensions Ltd. had announced its plans to acquire 70 per cent equity in the pension company, while also acquiring an additional 26 per cent stake held by other shareholders, ultimately bringing the proposed acquisition to 96 per cent stake in AIICO Pension.
The sale by AIICO is not due to poor performance, as the group’s profit in 2019, had soared by 88 per cent driven by growth across all lines of business.
Pension Fund Administration is, no doubt, a competitive landscape. Aside the over N10 trillion industry capital base, there is also the overarching advantage that pension contributors do not change PFAs regularly, therefore, making it hard to compete with big names that have been in the game for decades – the kinds of StanbicIBTC, ARM, Premium Pension, Sigma, and FCMB.
The fact that PFAs also make their money through fees means the bigger the size, the more money you make. With pressure to capitalise mounting, many insurance firms will most likely divest, as they may not have the right focus, skills, and talents to compete.
The recent directive by PENCOM giving contributors the opportunity to switch from one PFA to another might have seemed like the perfect opportunity for the smaller pension companies to increase their market shares by offering better returns.
More so, with the introduction of more aggrieved portfolios in the multi-fund structure consisting of retirement savings accounts (RSA) funds 1, 2, & 3, PFAs can invest in riskier securities and enhance their returns.
However, the reality is that the smaller PFAs don’t have what it takes to effectively market their capacities. With not particularly spectacular gains, it is easier for the underwriters to deploy their available resources into expanding their core business. Besides, with their major focus on meeting the new capital requirements demanded by NAICOM; the next smart move is to sell underperforming assets to keep their heads above water.
Commenting on the development, the Head of Risks in a leading PFA, Olasiji Omotayo, said: “Most insurance businesses selling their pension subsidiaries may be doing so to raise funds. Recapitalisation is a major challenge now for the insurance sector, and the Nigerian capital market may not welcome any public offers at the moment. Consequently, selling their pension business may be their lifeline at the moment.
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