March 15, 2021

Insurance sector struggles with adverse environment

Insurance industry pays over N11bn claims on #Endsars protests; could rise to N20bn

Adverse operating environment headlined by COVID-19 Pandemic and #EndSARS protest in 2020 has taken a massive toll on the growth rate of the Nigerian insurance industry.

But top 16 insurers have managed to record positive figures in their 2020 financial results though significantly below previous year’s figures. The 16 companies control over 80 percent of the entire industry.

The 16 companies are AIICO Insurance, Axa Mansard, Consolidated Hallmark, Cornerstone Insurance, and Coronation Insurance. Others are Linkage Assurance,   Mutual Benefits Assurance,   Nem Insurance, Niger Insurance, Prestige Assurance, Regency Alliance, Royal Exchange, Sovereign Trust, Sunu Assurance,   Universal Insurance, and Veritas Kapital.

Financial Vanguard  perusal of the early reports submitted by the 16 insurance companies to the Nigerian Stock Exchange shows a 27 per cent year-on year, y/y, growth in profitability in 2020, down from 89 percent in 2019.

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The companies’ combined profit after tax (PAT) rose to N26.5 billion in 2020 from N20.8 billion in 2019 which shows 27 percent growth, but the 2019 results shows that profit rose to N20.8 billion from N11 billion recorded in 2018, a whopping growth rate of 89 percent.      

Similarly, combined gross premium written, GWP, grew to N255.1 billion in 2020 from N219.6 billion in 2019 indicating 16 percent growth rate, but in 2019 GWP rose by 39.2 per cent, y/y, from N157.8 billion in 2018.

Meanwhile, as a result of the negative developments in the operating environment the 16 companies’ claims expenses in 2020 rose by 16.5 per cent to N92.8 billion from N79.8 billion in 2019, whereas during the 2019 financial year claims payment fell by 4.1 per cent, y/y, from N83.22 billion in 2018.


Industry perspectives

Though the growth rates in the key performance indices in 2020 was lower when compared to that of 2019 industry stakeholders are of the view that the performance is   commendable given the expected negative impact of the COVID-19 Pandemic and sharp increase in claims in the aftermath of the EndSARS crisis.  

Recall that the Nigeria Employers Consultative Association, NECA, had estimated that the private sector lost over N5 trillion as a result of the  #EndSARS  protest which resulted in the destruction of businesses and properties across the country.

The Nigerian Insurers Association, NIA, had estimated that the insured losses could run into billions of naira which would negatively impact insurance companies’ liquidity, balance sheet and cash flow.

Chairman of Nigerian Insurers Association, NIA, Mr. Ganiyu Musa said: “The development will have a huge impact on the industry. Claims from these damages will have an immediate negative impact on companies’ liquidity, balance sheet and cash flow but essentially, insurance was built for times as these and this is why people take up policies.”


Companies’ performances

But in spite of these adverse situations some of the companies recorded stunning results during the year, but a few others suffered massive declines.

Universal Insurance recorded the highest growth in  after tax profit,  with 1,592 per cent increase to N1.1 billion in 2020   from  N65.1 million in 2019.    

Veritas Kapital was second with 280 per cent growth in after tax profit to N468 million in 2020 from N123.4 million in 2019.  

In the third position is Coronation Insurance with 254.3 per cent growth in after tax   profit   to N759.3 million in 2020 from N214.3 million in 2019.

Nem Insurance came fourth  with 70.8 percent growth in after tax   profit to N4.1 billion in 2020 from   N2.4 billion in 2019.


In the fifth  position is Prestige Assurance with  50.5 per cent growth in after tax   profit to N649.7 million in 2020 from   N431.8 million in 2019.  

Others are AXA Mansard with 48.3 percent growth in after tax   profit to N4.3 billion in 2020 from   N2.9 billion in 2019; Sovereign Trust,   48.3 per cent growth to N746.3 million from   N503.4 million in 2019; and Sunu Assurances, 33.6 per cent growth to N301.0 million from   N225.3 million in 2019

Also in after tax profit Linkage Assurance recorded 26.7 per cent   growth to N1.9 billion in 2020 from N1.5 billion in 2019; Mutual Benefits,  25 per cent to N4.5 billion from   N3.6 billion in 2019; Regency Alliance, 8.3 per cent growth to N703.7 million from  N649.6 million in 2019; Consolidated Hallmark, 7.8 per cent to N647.1 million from N600.3 million in 2019; and AIICO Insurance, 1.0 per cent growth to N5.3 billion from   N5.2 billion in 2019.

However, Cornerstone Insurance recorded a 60.9 per cent decline in after tax  profit to N1.6 billion in 2020 from N4.1 billion in 2019.  

On the other hand, Niger Insurance which has been in loss position recorded annual loss of N575 million, though an improvement from N1.7 billion loss recorded in 2019.


Analysis of GPW

Veritas Kapital recorded the highest growth in GWP which rose by 110.3 per cent to N6.1 billion in 2020 from  N2.9 billion in 2019.

Universal Insurance followed with 78.9 percent growth in GPW to N3.4 billion in 2020 from N1.9 billion in 2019.  

Sunu Assurances came third with 35.5 percent increase in GPW to N4.2 billion in 2020 from N3.1 billion in 2019.

Others are Cornerstone Insurance with 34.4 per cent increase in GPW to  N17.6 billion in 2020   from N13.1 billion in 2019; Linkage Assurance, 27.7 per cent increase to N8.3 billion from   N6.5 billion in 2019; AIICO Insurance, 24.1 per cent to N61.3 billion from  N49.4 billion in 2019; Prestige Assurance, 19.2 per cent to   N7.03 billion from   N5.9 billion in 2019; Consolidated Hallmark 11.5 per cent to N9.7 billion from N8.7 billion in 2019; Nem Insurance, 11.3 per cent to N22.03 billion from   N19.8 billion in 2019; Axa Mansard, 9.2 per cent to N47.6 billion from  N43.6 billion in 2019; Royal Exchange, 8.5 per cent to N15.4 billion from  N14.2 billion in 2019; Mutual Benefits, 8.02 per cent to N20.2 billion from N18.7 billion in 2019; Coronation Insurance, 6.6 per cent to N16.2 billion from  N15.2 billion in 2019; and Sovereign Trust, 1.8 per cent to N11.1 billion from   N10.9 billion in 2019.

However, Niger Insurance recorded a 42.8 percent decline in GPW to N1.03 billion in 2020 from N1.8 billion in 2019, and Regency Alliance recorded  1.8 per cent decline to   N3.87 billion from   N3.94 billion in 2019.

Claims payment  

Veritas Kapital recorded the highest growth in claims payment which rose by   87.9 per cent to N907.2 million in 2020 from  N482.8 million in 2019.

Sunu Assurances   followed with 48.4 per cent increase in claims payment to N1.0 billion from  N673.8 million in 2019 while Cornerstone Insurance came third with 38.03 per cent increase in claims payment to N7.04 billion from N5.1 billion in 2019.

In the fourth position is Regency Alliance with 35.4 per cent increase in claims payment to N1.0 billion in 2020 from  N738.3 million in 2019.    

Mutual Benefits came fifth with 32.2 per cent increase in claims payment to N7.8 billion from N5.9 billion in 2019.    

In the sixth position is AIICO Insurance with 25.3 per cent increase in claims payment to N31.2 billion from   N24.9 billion in 2019.    

Others are: Nem Insurance   with 20.5 per cent   increase in claims payment to N4.7 billion from N3.9 billion in 2019; Prestige Assurance, 14.3 per cent to N1.6 billion from   N1.4 billion in 2019; Axa Mansard, 12.3 per cent to N20.9 billion from   N18.6 billion in 2019; Consolidated Hallmark, 11.8 per cent increase to N3.8 billion from   N3.4 billion in 2019; Universal Insurance, 5.6 per to N428.7 million from   N405.9 million in 2019; and Sovereign Trust with 3.6 per cent increase in claims payment to N2.9 billion from N2.8 billion in 2019.

However, four companies recorded decline in claims payment. They are Niger Insurance with  a 33.3 per cent decline to N1.2 billion from N1.8 billion in 2019; Royal Exchange, 19.5 per cent   decline to N3.3 billion from  N4.1 billion in 2019; Linkage Assurance, 18.8 per cent decline to N1.3 billion in 2020 from N1.6 billion in 2020, while Coronation Insurance recorded 8.4 per cent decline in claims payment to N3.7 billion in 2020 from  N4.04 billion in 2019.

Experts’ views

Insurance executives who spoke to  Financial Vanguard, choose to see positive narrative in the 2020 performance against the gloomy expectations, at the backdrop insured losses arising from the pandemic and the destruction that followed the #EndSARS  crisis.

But they also noted that the  #EndSARS  did not come with commensurate damage on the insurance compared with the economic damage due to low insurance coverage.

Commenting, Group Managing Director of Continental Reinsurance Plc, Dr. Femi Oyetunji,   said: “One of the things that I have found most disheartening in Africa is that if there is a disaster, there are huge economic losses but few insured losses because of the low insurance penetration.

“Unfortunately, the insurable loss from the  #EndSARS  protests is nothing compared to the economic loss and that again is because of under-insurance or non-insurance. People don’t know the importance of insurance. Insurance plays a huge role in restoring people back to the state they were before the loss occurred.”

Also speaking to  Financial Vanguard, Managing Director, Sunu Assurances Nigeria Plc, Mr. Samuel Ogbodu said that many victims of the #EndSARS  protests did not insure their businesses and the ones that insured did not extend their policies to cover riot and strike.

Ogbodu said: “Nigerians are very price sensitive. If you tell them about fire and special peril, and you add riot and strike, some of them will just say, ‘I am not interested.’ They just want to do the normal fire insurance,   which is the basic cover. Under fire insurance, we have fire and special peril and we have fire and extraneous peril. Riot and strike is extraneous peril which must be paid for. Most people did not buy that cover.”

On his part, Managing Director/Chief Executive Officer   of Universal Insurance Plc, Mr. Ben Ujoatuonu, averred that while insurance companies will pay for every insurance cover that extends to riot and commotion, they   will not pay for covers that exclude riots and commotion.

He said: “It depends on the cover the company or individual has bought. If the policy excludes riot and civil commotion, then the insured will not receive any indemnity from his insurance company.”


Going forward

On the way forward, operators advised businesses and individuals to learn from the crisis that followed the #EndSARS  crisis and fully embrace insurance to guard against losses from unforeseen accidents.

According to the National Insurance Commission, NAICOM, while it may be   necessary for businesses   and   individuals to adopt cost reduction measures in response to rising inflation and the harsh business environment, they should   avoid the tendency to extend such reduction to insurance.

  Speaking in this regard at   a recent   virtual summit, Commissioner for Insurance, Mr. Sunday Thomas noted that this is not the best of time to reduce insurance consumption, notwithstanding the biting inflationary pressures.  

Thomas noted that sometimes the gain in reducing cost could be less than what is lost in the long run.

He said: “Because there is inflation and recession in the economy, the tendency to reduce cost is high. Despite the biting inflation in the country, as people reduce the cost of expenses, this is not the best time to reduce insurance.”

On his part, Oyetunji, CEO, Continental Reinsurance Plc,   noted that risk is anything that brings uncertainty into the achievement of objectives, hence   business owners must identify their risks and the best measures to protect their businesses against such risks.”

Also speaking, Chief Financial Officer of Linkage Assurance Plc, Mr. Emmanuel Otitolaiye said that the #EndSARS  crisis was an eye opener for many individuals and businesses on the need to have adequate insurance, as such, the insurance industry must be ready, robust and stable so that as they take up more risks, there will be no problem in paying the claims, when the time to settle claims arises.  

He said: “There is a need for local insurance companies to develop capacity in the aspect of trading and technology and ensure that the Nigerian insurance industry can stand at par with so many other insurance companies out there in the world. “We don’t need a prophet to tell us that many insurance companies are struggling to survive. 

When you consider the long term viability of some of these companies, many are grossly illiquid. Even when there is a business opportunity, the proportion they can take will be so insignificant. In essence, the industry must be robust and stable so that when they take up risks, when the time to settle claims comes, there will be no problem in paying the claims.”

Vanguard News Nigeria