By Rosemary Onuoha
There are indications that insurers are committing more resources to meeting insurance claims and other underwriting expenses. But this development may be eating into their earnings as expenses outpace gross premium written, GPW.
Analysis of the industry performance for the first half of 2018, H1’18, show that while industry GPW increased by 17.7 percent to N163.1 billion against N138.6 billion recorded in the corresponding period of last year, total underwriting expenses shot up by 28.3 percent to N82.4 billion from N64.2 billion.
According to industry watchers, this trend could persist as most insurance companies battle to retain customers in the face of the Tier Based Minimum Solvency Capital, TBMSC, which indirectly compels companies to beef up their capital base.
The trend would mean that most insurance companies are raising their commitment level as they could be reaching out to high net-worth policyholders and shareholders for the purpose beefing up their capital base.
However, analysts also believe that the trend could indicate an adverse market situation although the expenses might have been committed to improving anticipated premium income.
It could also mean increasing overhead and higher crystallization of risks.
Underwriting expenses, according to insurance companies, comprise acquisition costs and other underwriting expenses. Acquisition costs comprise all direct and indirect costs arising from the writing of insurance contracts. Examples of these costs include, but are not limited to, commission expense, supervisory levy, superintending fees and other technical expenses. Other underwriting expenses are those incurred in servicing existing policies/ contract.
Analysis of companies with high underwriting expenses shows Sunu Assurances which total underwriting expenses shot up by 129.6 percent to N1.4 billion for the H1’18 against N609.6 million recorded in the corresponding period of 2017. This was against GPW growth of -0.5 percent at N1.96 billion against N1.97 billion in the corresponding period of 2017.
Prestige Assurance’s total underwriting expenses jumped by 100.4 percent at N1.3 billion against N648.8 million recorded in the preceding year. GPW, on the other hand, increased by 31.8 percent to N2.9 billion against N2.2 billion.
Universal Insurance was next as its total underwriting expenses went up by 59.7 percent to N76.5 million against N47.9 million in the corresponding period of 2017, while GPW grew by 31.5 percent to N579.2 million against N440.6 million.
Continental Reinsurance’s benefits and underwriting expenses went up by 52.3 percent to N13.4 billion against N8.8 billion, while GPW went up by 26.9 percent to N19.3 billion against N15.2 billion.
AIICO Insurance total underwriting expenses edged up by 39.8 percent to N16.5 billion against N11.8 billion, while GPW climbed by 30.4 percent to N19.3 billion from N14.8 billion.
Axa Mansard total underwriting expenses increased by 38.9 percent to N8.2 billion from N5.9 billion, while GPW went up by 31.3 percent to N23.5 billion against N17.9 billion.
Mutual Benefits underwriting expenses went up by 38.1 percent to N5.8 billion against N4.2 billion, while GPW climbed by 15.8 percent to N8.8 billion against N7.6 billion.
Custodian Investment underwriting expenses climbed by 29.7 percent to N16.6 billion from N12.8 billion the previous year, while GPW went by 15 percent to N18.8 billion against N16.3 billion.
Wapic Insurance underwriting expenses went up by 24 percent to N3.1 billion from N2.5 billion, while GPW climbed by 16 percent to N6.9 billion against N5.9 billion.
Consolidated Hallmark underwriting expenses increased by 23.5 percent to N2.1 billion against N1.7 billion, while GPW wentb up by 18.2 percent to N3.9 billion against N3.3 billion.
Linkage Assurance underwriting expenses went up by 23.4 percent to N1.2 billion against N972.6 million while GPW was increased by 37 percent to N3.7 billion against N2.7 billion.
Sovereign Trust underwriting expenses went up by 19.8 percent to N1.1 billion from N918 million, while GPW increased by 16.4 percent to N7.1 billion against N6.1 billion.
Regency Alliance underwriting expenses went up by 16.4 percent to N497.9 million against N427.9 million, while GPW increased by 9.7 percent to N3.4 billion against N3.1 billion.
Guinea Insurance underwriting expenses went up by 16.3 percent to N126.5 million against N108.8 million, while GPW went up by 14 percent to N688.9 million from N604.1 million.
Lasaco Assurance underwriting expenses went up by 10.5 percent to N1.7 billion against N1.9 billion, while GPW increased by 29.2 percent to N6.2 billion against N4.8 billion.
Nem Insurance underwriting expenses went up by 10.5 percent to N2.1 billion from N1.9 billion, while GPW went up by 13.6 percent to N9.2 billion against N8.1 billion.
Royal Exchange underwriting expenses went up by 3 percent to N3.4 billion from N3.3 billion, while GPW increased by 12.8 percent to N10.6 billion against N9.4 billion.
Meanwhile for companies that did not record increase in underwriting expenses,
Niger Insurance led the lot as its total underwriting expenses decreased by 68.4 percent at N916.1 million from N2.9 billion, while GPW also declined by 61.3 percent to N2.4 billion against N6.2 billion.
Cornerstone Insurance underwriting expenses decreased by 0.7 percent to N852.2 million from N857.9 million, while GPW went up by 26.8 percent to N7.1 billion against N5.6 billion.
Veritas Capital Assurance underwriting expenses declined by 7.7 percent to N272.8 million from N295.6 million, while GPW went up by 23.5 percent to N2.1 billion against N1.7 billion.
Law Union underwriting expenses declined by 6.9 percent to N467.5 million from N502.1 million, while GPW climbed by 1.1 percent to N2.79 billion against N2.76.
Great Nigeria Insurance underwriting expenses declined by 3.6 percent to N637.3 million from N661.3 million, while GPW declined by five percent to N1.9 billion against N2.0 billion.
Commenting on the development, Chairman of New Dimension Shareholders Association, Mr. Patrick Ajudua, said that insurance companies are showing more commitment towards customer satisfaction.
Ajudua stated: “The underwriting expenses of insurance companies are trending towards the high side now because most of them are actually taking up the task of redressing the fears of investors and insurance customers. In the past it was a lukewarm expense portfolio because most of them just want to make profit. This time around, they are showing commitment and they are allaying the fears of most of their customers. That is why we are seeing a drastic increase now.
“The task ahead of insurance companies is to prove that when it is time for expenses to be made, they should not just focus on making profit but ensure that responsible expenses is undertaking. They should ensure that when expenses are supposed to be acknowledged and provided for, it is done. Some companies will just bury or amortize it, thereby increasing their profitability and that is not really how it should be. So I can see a new commitment from the insurance players going forward.”
Vice President of the Nigerian Council of Registered Insurance Brokers, Mr. Rotimu Edu, said that such increasing underwriting expenses may not be totally bad.
He stated: “Increasing underwriting expenses may indicate a poor performance, however, the expenses might have been committed to improving anticipated premium income. It may not be totally bad after-all.”