SULEIMAN ASKS CBN TO PAY COMMERCIAL INTEREST RATE ON STATUTORY DEPOSIT
Chairman of Cornerstone insurance Plc, Mr. Adedotun Sulaiman said that underwriters are not satisfied with the current interest rate that the Central Bank of Nigeria (CBN) pays on the statutory deposit of insurance companies, stating that the rate is too low.
According to Suleiman the CBN should pay commercial interest rates on the statutory deposit. Insurance and reinsurance companies are statutorily required to deposit 10 per cent of their capital base as reserve with the CBN. This money cannot be withdrawn by the insurer unless it is in the process of liquidation.
Currently, the CBN according to insurance operators pays a paltry 3.5 per cent interest on insurers' statutory deposit with it while the Monetary Policy Rate (MPR) which the CBN pays for deposits by any commercial bank currently stands at 8.75 per cent. Consequently, Suleiman stressed that the rate should be reviewed so that it will fall in tandem with the MPR.
On the call from some quarters that insurance companies should be allowed to withdraw from the statutory deposit to run their businesses, Suleiman stated that there is nothing insurers can do about it.
In his words 'I don't think there is anything insurance people can do about it that is the honest truth. The reason is because it is a security deposit. So when underwriters insure the public, they are making a promise that they have the ability to pay when claims arise.
It is almost like an insurance of the insurance industry itself so that if any insurance company is unable to pay claims, as a last resort, the money will be used to settle the claims. So if a company is going to fail, it won't fail completely, at least there is some money that is left in safe custody by the regulator that can be used to serve as wedge for the company,' Suleiman noted.
It will be recalled that the Nigerian Insurers Association (NIA) has tasked the CBN to initiate the process for the money to be released to insurers.
Chairman of NIA, Mr. Olusola Ladipo-Ajayi, maintained that the CBN should raise the interest rate payable on their statutory deposit to put them in a better position to pay higher returns on investments to their shareholders and promptly meet their obligations to policyholders.
He reasoned that the deposit with the apex bank should also attract in the least the MPR, adding that if the CBN wants to be fair to the insurers, it pay them a higher rate than the MPR in view of the fact that these deposits has no maturity date. 'The length of time of the deposit should affect the interest rate more positively,' he stressed.
The NIA Chairman recalled that banks make similar deposits with the CBN before they are licensed to commence operations and the apex bank returns the deposit to them to plough back into their business after the process.
Chief executive officer of Guaranty Trust Assurance Plc Mrs. Yetunde Ilori stated that insurance operators should be allowed to give out the money as loan for the financing of infrastructural projects in the country just as the banks are allowed to do.