Coronation Insurance Plc’s profit is on the edge of profitability, with combined ratios rising and the expectation of slow economic recovery could tip the insurer over the edge.
Analysts say it is clear from spiraling claims that the insurance market is getting to a point where profits could be eroded and that maintaining the soft rate environment will be getting very difficult.
For the first six months through June 2021, Coronation Insurance net income dipped by 64.49 percent to N397.84 million from N654.54 million.
Notably, the insurer is not earning more than what it is paying out as claims, and management and claims expenses are rising.
Combined ratio deteriorated to 153.39 percent in the period under review from 141.36 percent the previous year, according to MoneyCentral calculations.
That resulted in a negative real underwriting result of 2.44 billion as at June 2021.
It paid total claims of N2.89 percent as of June 2021, which represents a 97 percent surge from 2020’s N1.47 billion in June 2020. Claims ratio increased to 63.33 percent in the period under review from 40.38 percent the previous year.
Of course, coronation insurance and its peer rivals are operating in a tough and unpredictable macroeconomic environment; and the low yields environment is undermining investment returns that adds impetus to the bottom line (profit).
The prevailing conditions in the economy have impacted sign-on of new business, renewal rate, installment payment of premium.
Coronation Insurance profitability is lower than the cost of capital, while the return on equity has noise dived.
It is worth noting that inflationary pressures and a weak currency means the cost of replacing assets will go up, and that could further undermine the already deteriorating profit margins of companies who are not delivering higher returns to shareholders in the form of share appreciation and bumper dividends.
Further analysis of the financial statement of Coronation Insurance shows gross premium income was down 13.61 percent to N7 billion in the period under review from N8.10 billion the previous year.
Also, net premium income dipped by 26.36 percent to N4.61 billion in the period under review from N3.64 billion the previous year.