By Rosemary Onuoha


THERE are indications that the financial fortune of the insurance industry is reversing the adverse portfolio profile which had seen claims crowding out premium income.

The latest financial reports of leading insurers for the 2019 financial year have shown that claims obligations are on the decline while premium income recorded slight increase.

However, on standalone basis, few companies still made huge claims payment that impacted on their profitability which, according to industry analysts, is the inability of the affected insurers to choose viable investment options to boost turnover, Gross Written Premium, GWP, and profitability.

The financials released by the National Insurance Commission, NAICOM, show that GWP for the 2019 financial year went up by 15 percent to N490.9 billion against N426.2 billion recorded in 2018.

In 2018, GWP rose by 14 percent from N372.4 billion in 2017. Though claims obligation still went up by 31 percent to N330.4 billion against N252.2 billion recorded in 2018, the growth rate appeared lower than the 35 percent rise recorded in 2018 against the N186.4 billion in 2017.

Analysts argue that with sound underwriting as well as making right investment choices, growth in GWP could outpace claims payment in no distant time. According to the analysts, the poor allocation of some insurers’ investments portfolio is the reason for their dwindling fortunes as they have refused to get out of low yielding investment outlets and invest in better deals.

Other factor is the huge percentage of premiums that some insurers cede to reinsurers. Since some companies tend not to have the capacity to absorb the huge losses that arise from oil and gas business, they had to cede close to 90 percent of their oil and gas premiums to reinsurers, and that takes out from their margins as well.

Analysts are of the opinion that if insurers can boost scale, are able to grow premium a lot larger, cede less to reinsurers and retain more of their premiums, they will be better off.

Companies’ performance

Analysis of industry performance in the year under review show that Custodian Investment recorded worse outing in terms of claims payment as its claims portfolio shot up by a whopping 83.7 percent to N28.1 billion against N15.3 billion. Its GPW increased by just 28.6 percent to N47.2 billion against N36.7 billion.

Nem Insurance claims payment shot up by a whopping 57.7 percent to N4.1 billion against N2.6 billion. But the company’s GWP climbed by 30.9 percent to N19.7 billion against N15.04 billion.

Sovereign Trust claims payment increased by 22.2 percent to N2.2 billion against N1.8 billion. GWP went up by 3.8 percent to N10.9 against N10.5 billion.

Low claims vs higher GWP

Meanwhile, Sunu Assurance was on top of the chart of companies with modest claims payment as its claims payment declined by 69.3 percent to N705.1 million against N2.3 billion in 2018. GWP increased by 1.9 percent to N3.1 billion against N3.04 billion. Universal Insurance claims payment declined by 64.1 percent to N94.2 million against N262.7 million. However, GWP went up by 11.8 percent to N1.9 billion against N1.7 billion

Royal Exchange claims payment went down by 40.2 percent to N3.6 billion against N6.02 billion. GWP declined by 3.4 percent to N14.2 billion against N14.7 billion.

Consolidated Hallmark claims payment declined by 39.6 percent to N2.9 billion against N4.8. GWP went up by 26.1 percent to N8.7 billion against N6.9 billion.

Linkage Assurance claims payment declined by 37 percent to N1.7 billion against N2.7 billion. GWP increased by 20.4 percent to N6.5 billion against N5.4 billion. Regency Alliance claims payment went down by 32.5 percent to N742.9 million against N1.1 billion. GWP increased by 14.7 percent to N3.9 billion against N3.4 billion.

High GWP vs high claims

Aiico Insurance GWP went up by 33.1 percent to N50.2 billion against N37.7 billion. However claims payment went up by 5.9 percent to N25.3 billion against N23.9.

Axa Mansard GWP went up by 28.6 percent to N43.6 billion against N33.9 billion. Claims payment went up by 10.9 percent to N18.3 billion against N16.5 billion. African Alliance GWP went up by 30.9 percent to N8.9 billion against N6.8 billion. Claims payment however went up by 8.2 percent to N10.5 billion against N9.7 billion.

Stakeholders react
The insurance sector, according to Agusto & Co, has the option of choosing viable investment options but they are not doing that.

Ada Ufomadu of Agusto & Co told Vanguard that the Nigeria microeconomic environment will still be the driver of growth for the insurance sector, however, choosing viable investment options is within the control of insurance companies but they are not doing that.

She said, “Choosing a good investment vehicle is unlike the underwriting business which is affected by claims. If claims come, you must pay as an insurance company because that is a lot outside of your control. But the one that is within your control is the excess money that you can invest where you will get significant returns. In that aspect the insurance players are not getting it and that has been a major contributor to their returns on equity.

“Many insurers are not investing in the right asset. Some of them have long term assets in real estate investment. They have investments in bare lands, just there sitting in their books and they are not doing anything with those investments. They keep revaluing them and getting revaluation amounts that cannot be actualized. You tell me that this land is worth N1 billion but if I go to the market to sell it for one billion, people are saying it’s worth N500 million and that is what they are going to pay. Unfortunately, insurance operators are not sweating these assets to give returns so we see a huge portfolio of real estate investments that are not yielding much.

“They also have investments in equities that are not yielding much. They had invested in stocks of companies when there was a boom in the capital market. After the bust happened, most of them didn’t check out of the exposures. They just sat down there assuming that things will go back up. So stocks that were bought at N50 have gone down to N20 and they are still in the books of some insurance companies and they have not done anything about it. So the value has been lost and that is another investment that has gone bad.

“So the allocation of their investments has been a problem and they need to check where they can get the highest yield. They need to get out of a low yielding position and invest in a better deal. Hence going forward, they need to be strategic in their allocation of assets.”

Ufomadu also said that another thing that has negatively impacted the industry underwriting profit is their reinsurance commitments.

She said: “Many insurance companies cede out a lot of premium to reinsurance firms especially in sectors like oil and gas that is very risky. So because they don’t have the capacity, that is the capital to absorb the huge losses that arise from oil and gas business, they have to cede close to 80 to 90 percent of their oil and gas premiums to reinsurers, and that takes out from their margins.

“And then there is also acquisition and maintenance costs to run the business which has also affected underwriting profit margin. Hence the lack of scale has continued to pose as a huge challenge for the industry. If the industry is able to grow its premium a lot larger, cede less to reinsurers and retain more premiums, they will be better off. But they cannot retain as much as they want because the capital is low that is why we think that the recapitalization is very apt and extremely necessary for the industry.
“The industry needs capital. If they have capital they will be able to retain more of the oil and gas premiums. They will have money to invest in whatever investment outlet they choose and they will be more profitable. So the recapitalisation mandate by NAICOM is apt and needed.”

Deputy Managing Director/Chief Operating Officer of Africa Reinsurance Corporation, Mr. Ken Aghoghovbia said that while few companies have been able to boost their turnover with profits from their investments income, more companies have to do same.

He said: “Some insurance companies make underwriting losses but however edge up their financials with investment incomes. Although the investment climate now is volatile due to outcomes from the coronavirus outbreak, companies stand to benefit more from good investments.

President of the Chartered Insurance Institute of Nigeria, CIIB, who is also Managing Director of Consolidated Hallmark Insurance noted that under-pricing of risks have been the undoing of many insurance operators and the slow growth in premium income.

“I believe in underwriting which teaches that when you have a good risk, you lower your premium, when you have a bad risk, you increase your premium.”


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.