ABSTRACT

The main area of insurance company’s activity is selling protection to their customers. But insurers also hold investments to cover future claims or benefits, administrative expenses and profits to shareholders. The role of insurance investment in management is to manage the funds generated by the insurance business, maximizing risk adjusted returns while meeting regulatory requirements on its assets and other financial constraints. Insurance investment managements must ensure that investment returns preserve the solvency, both regulatory and economic, of the insurance company, earn the return commensurate with the use of its capital and enable it to continue to underwrite profitable insurance business. This study is concerned with the growth of Insurance through investment in Nigeria. The specific objective is to examine the growth rate of Insurance business via investment of funds. Secondary data were collected from the financial department of the insurance company used as a case study. The result of the findings revealed that investment of insurance funds has been one of the major contributors to the growth of insurance business.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO STUDY

The image of insurance has become more sensitive than ever, because we are in are in a world full of uncertainties, all kinds of stresses, and growing complexities of business in modern day. Nigeria, coupled with the increasing number of business concerns employing many hands, the importance of an insurance scheme can hardly be underestimate. We can also note that every aspect of human life in any dimension one can think of is subject to one risk or the other.

The risk involved many are against human life or material possession. Insurance is one of the social sciences which essentially are designed for risk taking. This process of risk taking entails the pooling together of the resources of many individuals in order word; insurance is the management of a pool of risk whereby, the fortunate members of a group assist the unfortunate few who suffer losses.

Adeyemo (1999:12) defined insurance as a social and economic device which provides financial compensation against the effects of any misfortune. This compensation is made from the accumulated contributions of all parties taking part in the insurance scheme. Apart from covering industrials insurance also protects corporate bodies and other business organization from varieties of hazards like burglary, workman compensation indemnity, goods – in – transit, public liability etc.

Investment refers to that part of a person’s income or firm’s income that is immediately put to use for a certain return of additional income.

The investment of insurance funds in Nigeria is regulated by the insurance decree of 1976 under section 18. the substantial funds held by insures are invested as a funds held by insurers are invested as to earn interest on capital gains. Insurance companies provide funds for investment through the premium they collect from their numerous policy holders. Life insurance companies for instance, invest funds that flow to them from many policy holders thus, becoming important source of capital funds for the Nigerian economy. Insurance companies help to provide the state with a steady flow of investment funds which are essential to the community.

The investment of insurance funds helps to contribute profits to the national purse and also provide labour for the working population in a given area. In the investment of insurance funds, the overall aim is to be able to meet liabilities when they fall due, while earning to the highest possible yield without incurring great risk too. In non-life insurance, the major problem for an insurer is the unexpectedly large claims which might force him to sell its investment at long notice, possibly at a loss. As a result of this, insurers therefore, concentrate on investment which can be sold at short notice; such include shares and stocks and avoid those that cannot be sold at short notice.

In life assurance, the safety of the funds as well as very high yields, are of paramount importance because of long-term nature of their liabilities. Long-term investment is useful to life assures.

1.1.1  HALLMARK ASSURANCE NIGERIA PLC

Hallmark Assurance Nigeria company started business as one of the insurance companies on 15th July 1969.The Company has since been rendering excellent services to the nation and to the world at large.     

During their Annual general meeting which was held in 1993, Hallmark was merged with a sister company, it now become a composite company and transacts both classes of insurance namely: life and non-life.

The company had earlier become a public liability company following its admission into the Nigeria stock exchange. This was as a result of completion of the privation exercise carries out in the company by the east while Technical committee on privatization and commercialization (TCPC) now Bureau for public Enterprises (BPE). The authorized share capital is N400 million while the issued and fully paid up capital is N337 million, making Hallmark as one of the highest capitalized companies in Nigeria.

With a total base of N1.5 billion, gross premium income of N1.02 billion, claims settled N346.2 million for the past four years. It is by all account a leading company in Nigeria.

1.2     STATEMENT OF PROBLEMS

 Before proceeding in this study, there is the need to have already focused statement of the problem. In specific terms, the statement of the problem is the key to the design of the research.

Some of the problems of insurance industry include:

1.      There is the problem of bad debt regarding the non-payment of premium.

2.      In most cases, there is lack of funds to invest due to poor business.

3.      Most instruments which insurance companies requires for an investment are not available to them.

4.      Most insurance companies desire to invest in readily marketable securities but are not easy come by.

1.3     PURPOSE OF STUDY

This research paper is aimed amongst others to identifying the various to which these funds are invested as well as the effects of such investments in the Nigerian economy: thus, a comprehensive appraisal of the investment of insurance funds in Nigeria. To achieve this aims Hallmark Assurance Nig. Plc. has been chosen for an in-depth study.

1.4     IMPLICATION OF THE STUDY

This implication of the study is that investing. Insurance funds boost the economy of any nation. This implies that peoples’ standard of living will be increased as a result of loss prevention activities of insurance company.

1.5     LIMITATION OF STUDY

Due to large number of organization and nature of information involved, the study will be limited to Hallmark Assurance Nigeria Plc.

Furthermore, the researcher will not make a better choice of insurance companies due to long distance factor, because of the nature of information required; the researcher will be limited to the use of personal interview as a main method of data collection. The respondents may not give prompt answers for security reasons, and they will demand elaborate explanation before answering questions. These, to some extent will hinder the free flow of research work.

1.6     RESEARCH QUESTIONS

1.     What are the trends of insurance funds generated by insurance industry taking into consideration the periods 2011-2015?

2.     What factors determine the areas of investment of funds?

3.     What forms of investments are insurance funds put into the most?

4.     What appropriate strategies can be put in place to ensure effective management of the insurance funds?

1.7     RESEARCH HYPOTHESES

With respect to the statement of problem and research question, the following hypotheses were stated to help further direct the research study in order to achieve the required purpose.

H0: There is no substantial growth contributed by investment of insurance funds

H1: There is substantial growth contributed by investment of insurance funds

1.8     SIGNIFICANCE OF STUDY

The significance of study involves the objective which the researcher intends to achieve, the following objectives make up the significance of study:

a.       To identify the class(es) of funds invested by insurance companies in Nigeria.

b.      To ascertain the effects of the invested funds in Nigeria.

c.       To determine the likely instruments in which insurance companies invest on

d.      To determine how the efficient utilization of the invested funds are insured

e.       To identify the existing regulation / policy guiding the investment of insurance funds.

1.9     DEFINITION OF TERMS

Asset: A property of financial claim which can be easily converted into cash

Assured: A person whose life has been assured

Balance sheet: A financial statement prepared so as to exhibit the assets and liabilities of a company usually at the end of financial year.

Capital gains:  Profit made by selling possessions

Cover: Protection provided by the insurance company

Financial investment: This is an investment made in financial assets such as stocks, bond, shares, debentures, etc.

Fund: A collection of premium from which losses can be paid.

Indemnity: The placing of an insured in the financial position after the loss as he was enjoying before.

Insurance: A contact between two parties whereby the Insurer agrees to indemnify the insured upon the happening of an unfortunate event.

Insurance policy: A document issued by an insurance company containing the terms and conditions of all insurance contract and which are legal evidence of the agreement to insure.

Insured: Person purchasing insurance cover

Insurer:   Person or somebody authorized to sell insurance

Investment:     Involves the acquisition durable, productive facilities (either financial or physical) undertaken in the expectation of future gains.

Lease: A letting or hiring of tangible assets usually for a specific period of time.

Premium: The payment of an agreed sum whether in one amount or by instalment to an insurance company by the company’s undertaking to indemnify the insured upon the happening of a stipulated contingency.

Insurance Premium reserve: money set aside by insurance to cover potential liabilities of policies still in force at the end of the accounting year.

Risk: The uncertainty of loss on expected income.

1.10   ASSUMPTIONS OF STUDY

During the research work, the researcher was able to make the following assumptions;

1.     The researcher assumed that insurance serves as a device for solving complex social problem.

2.     It was also assumed that insurance companies have a great influence in the investment and financial markets in the world.

3.     It was assumed that non-payment of premium by policy holders will lead to the malfunctioning of insurance companies.

4.     The researcher assumed that insurance will eliminate barriers to the establishment of business. It removes the fear of total loss in case of any unfortunate event.

5.     Lastly, it was assumed that greater chance of loss is minimized by insurance companies due to their loss prevention activities.

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