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Profit decline worsens in the insurance sector

By Rosemary Onuoha

DESPITE optimism on the part of operators that the insurance sector could reverse into profit territory in the first half of 2019, H1’19, the sector sustained profit decline.

President of the Nigerian Council of Registered Insurance Brokers, NCRIB, Mr. Shola Tinubu amongst other operators had expressed the view that the sector could witness more insurable activity and increased profit going forward if the economy sustains its exit from recession.

However, analysis of activities in the sector in H1’19 show that profit declined by 23.3 percent to N12.3 billion against N15.9 billion recorded in the corresponding period of 2018.

insurance

The H1’18 figure shows that profit fell marginally by 4.2 percent from N16.6 billion recorded in the corresponding period of 2017.

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But this scenario presents a contradiction as the sector’s major income line, Gross Premium Written, GPW, shows a robust uptrend with a 20 percent upsurge to N189.9 billion in H1’19 from N158.2 billion in the corresponding period of 2018.

The income line had gone up by 10 percent to N400 billion in the full financial year 2018, against N363 billion recorded in 2017.

However, though claims have moderated at 18.5 percent to N64.6 billion in H1’19 from N54.5 billion in H1’18 this was not enough to save the industry from negative earnings. The industry net claims figure went up by a whopping 30 percent to N143 billion by year end 2018 from about N110 billion reported for the same period in 2017.

Analysts who spoke to Financial Vanguard said that the worsening profit decline and huge claims portfolio in the face of climbing premium income portrays an industry that is unskillful in risk underwriting.

Head of Research at Coronation Merchant Bank, Mr. Guy Czartoryski, told Financial Vanguard that the negative trend being portrayed so far is an indication that many of the operators lack the skill to underwrite risks to their benefits.

Czartoryski said: “There are a handful of sound insurance companies in the sector, however, when you take a critical look at their loss ratio, you will realize that they lack the skill for sound underwriting. A lot of companies don’t know how to underwrite, therefore, the loss ratio is getting high. Expense ratios are also getting way off its scale and expenses are far too high.”

 

Companies’ performance

A look at individual company’s performance show that while some companies posted some positive earnings, the negative earnings of others led to the industry’s poor outing in the HI’19.

Showcasing the worst outing was Royal Exchange Plc with a 2.8 percent decline in GPW at N10.3 billion against N10.6 billion in the corresponding period of 2018. The company’s net claims payment skyrocketed by 46.7 percent to N2.2 billion from N1.5 billion. It suffered a loss after tax of N631.5 million against profit after tax of N19.5 million which represents a whopping 3,345.9 percent decline.

African Alliance was next with a 34.5 percent growth in GPW at N3.9 billion from N2.9 billion. However, its claims expenses went up by 10.3 percent to N4.3 billion against N3.9 billion while it recorded a loss of N2.4 billion against a loss of N1.1 billion.

Universal Insurance GPW increased by 107.2 percent to N1.2 billion against N579.2 million. However, net claims climbed by 63.9 percent to N246.4 million against N68.4 million while loss after tax went up by 3 percent to N173.1 million against N17.8 million.

 

Increased GPW but decline in profit

Axa Mansard recorded a 25.1 percent increase in GPW at N29.4 billion from N23.5 billion. Net claims went up by 30.5 percent to N10.7 billion against N8.2 billion while profit after tax dipped by 6.7 percent to N1.4 billion against N1.5 billion.

Continental Reinsurance GPW climbed by 8.8 percent to N21 billion against N19.3 billion. Net claims increased by 23.5 percent to N8.4 billion against N6.8 billion while profit after tax fell by 63.9 percent to N864.3 million against N2.4 billion.

Prestige Assurance GPW went up by 27.6 percent to N3.7 billion against N2.9 billion. Claims expenses climbed by 52.3 percent to N980.6 million against N643.8 million while profit after tax fell by 5.8 percent to N346.1 million against N367.4 million.

Law Union and Rock GPW went up by 14.3 percent to N2.4 billion against N2.1 billion. Claims payment went up by 40.1 percent to N775.8 million against N553.9 million while profit after tax fell by 71.8 percent to N102.7 million against N364.2 million.

Sunu Assurances GPW went up by 21.1 percent to N1.5 billion against N1.9 billion. Net claims expenses declined by 59.8 percent to N442.3 million against N1.1 billion, however, loss after tax declined by 71.9 percent to N174.5 million from N622.9 million.

Profit Makers

On the profit making side, AIICO Insurance GPW increased by 31.6 percent to N25.4 billion against N19.3 billion. Claims expenses went up by 7.9 percent to N12.3 billion against N11.4 billion while PAT climbed by 52.6 percent to N2.9 billion against N1.9 billion.

Wapic Insurance GPW went up by 26.1 percent to N8.7 billion against N6.9 billion. Net claims declined by10.5 percent to N1.7 billion against N1.9 billion while PAT increased by 392.7 percent to N305 million against N61,911 million.

Custodian & Allied Insurance GPW climbed by 40.9 percent to N26.5 billion from N18.8 billion. Claims expenses increased by 80.6 percent to N12.1 billion against N6.7 billion while PAT went up by 10.8 percent to N4.1 billion against N3.7 billion.

Cornerstone Insurance GPW climbed 8.5 percent to N7.7 billion against N7.1 billion. Claims declined by 22.2 percent to N1.4 billion against N1.8 while PAT increased by 9.9 percent to N501.8 million from N456.7 million.

Consolidated Hallmark GPW incrased by 23.1 percent to N4.8 billion against N3.9 billion. Claims declined by 8.3 percent to N1.1 billion against N1.2 billion while PAT increased by 124.2 percent to N332.4 million against N148.3 million.

Lasaco Assurance GPW went up by 11.3 percent to N6.9 billion against N6.2 billion. Net claims went up by 18.6 percent to N795.9 million against N671.1 million while PAT went up by 25.4 percent to N479.4 million against N382.5 million.

Mutual Benefits GPW went up by 9.1 percent to N9.6 billion against N8.8 billion. Net claims declined by 36.6 percent to N2.6 billion against N4.1 billion while PAT went up by 115.3 percent to N1.4 billion against N650.2 million.

Regency Alliance GPW went up by 8.8 percent to N3.7 billion against N3.4 billion. Claims expenses fell by 3.6 percent to N746.6 million against N774.7 million while PAT went up by 11.4 percent to N317.3 million from N284.8 million.

Nem Insurance GPW went up by 28.2 percent to N11.8 billion against N9.2 billion. Claims expenses climbed by 1446.5 percent to N2.1 billion against N135.8 million while PAT increased by 6.7 percent to N1.6 billion against N1.5 billion.

Sovereign Trust GPW went up by 2.8 percent to N7.3 billion against N7.1 billion. Claims fell by 23.1 percent to N1.0 billion against N1.3 billion while PAT increased by 21.5 percent to N480.5 million against N611.9 million.

Linkage Assurance GPW went up by 10.8 percent to N4.1 billion against N3.7 billion. Claims fell by 35.9 percent to N705,436 million against N1.1 billion while PAT went up by 15.9 percent to N572.8 million against N493.8 million.

 

Operators’ reaction

Speaking on the development, Managing Director of Achor Actuarial Services Limited, and former Managing Director of Linkage Assurance, Mr. Pius Apere said that high claim ratio has been an issue in recent years, as a lot of customers are beginning to realize that they have the right to make a claim in the event of their insured loss crystallizing.

He said: “Claims are on the increase when you compare with previous years and what accounted for it cannot be taken away from the fact that more Nigerians are beginning to make claims. So it is going to impact on performance and at the end of the day it affects the bottom-line.”

Former President of the Nigerian Council of Registered Insurance Brokers, Mrs. Laide Osijo said that the refusal of insurers to increase premium rates is also affecting profit.

She said: “We are in a market that is highly sensitive to pricing. It is not automatic that you increase your premium rate because your claim ratio is going up. The customer will object. Unfortunately, it is affecting profit. Despite all these, companies still have certain level of overhead costs to maintain, so all of these have really affected profit.

Managing Director of Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha said that the ideal thing is to price right if the sector is to witness improved profit earnings going forward.

Efekoha said: “A situation where there is a major loss on an account, and the next year the insurer decide to reduce the premium by half, doesn’t speak so well of us. If you are trading with your shareholders fund or capital and you think that is the best way as management to deploy your capital, all well and good. But if we must do well as an industry and as operators, we must price right, so that we can live up to our expectation or obligation to all stakeholders.”

Also speaking on the development, Managing Director of Alpha Choice Insurance Brokers, Mr. Sunny Adeda said that some insurance companies are committing huge resources towards IT development, hence, the decline in profits.

“Companies are committing more towards IT development; however, it doesn’t mean that the companies are in distress. On the other hand, it could mean that some operators are not growing income as aggressively as they are spending,” he said.

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