ECONOMIC IMPACT OF INFLATION AND INTEREST RATE ON LIFE ANNUITY BUSINESS IN NIGERIA

Abstract

This study investigated economic impact of inflation and interest rate on life annuity business in Nigeria. The study was a secondary research, as such; ex-post facto research design was adopted. Data were sourced from CBN statistical bulletin, PENCOM and NAICOM publications from 2010 to 2020. Stationarity test was first carried out using Phillips-Perrons statistical method and Johansen co-integration test, while ordinary least square (OLS) statistical method was used for data analysis. Results from the tests of hypotheses show that: rising rate of inflation had not posed significant challenge to life annuity business in Nigeria. While interest rate instability had posed significant challenge to life annuity business in Nigeria. The study concludes that inflation rate and interest rate impact on the growth of life annuity business in Nigeria. The study recommends that: government should formulate monetary policy objectives targeted at combating rising inflation rate in Nigeria. By achieving this, the benefits due to life annuity policyholders and investment returns of life insurance companies will not be eroded by inflationary effects. There is need for government through its apex financial sector regulator (CBN), to target favourable interest rate regime that will be sustained for a longer time in order to encourage business growth and investment opportunities in Nigeria.  Finally, insurance companies should embark on aggressive awareness creation about the importance of life annuity, improve on the available actuarial skills, be more innovative in designing/marketing life annuity products that will meet the needs and aspiration of Nigerians and ensure prompt payments of benefits to retirees or policyholder in order to deepen life annuity penetration in Nigeria.  By doing these, life insurance companies will be in a better position to receive a reasonable proportion of the estimated 10 trillion naira pension fund under management through life annuity premium.