Africa Alliance Nigeria Plc has recorded its first profit since 2016 as accumulated losses in the balance sheet is responsible for negative shareholders’ funds that suggests the insurer is technically insolvent.
The insurer has been reeling with mounting obligations as revenue growth is not strong enough to cover spiraling operating expenses, and owners of the company may not be paid dividend since the law prohibits entities from making such distributions from negative reserves.
For the first nine months through September 2021, Africa Alliance posted profit after tax of N1.02 billion from a loss position of N3.22 billion as at September 2020.
The last time it made a profit was in 2016 when it had not capitulated to unfavorable underwriting conditions.
The stellar performance was largely driven by changes in long term insurance contracts of N11.27 billion that absorbed loss on fair value of assets of about N6.46 billion and other exceptional items.
While the company honors obligation to policyholders, such payments are becoming a huge liability.
Of course, total claims expenses of N7.68 billion as at September 2021 which is 43.55 percent higher than 2020’s N5.35 billion is 1.55 times net premium income.
Interestingly, claims expenses stood at 155.35 percent in September 2021 from 120.09 percent the previous year.
Meanwhile, the insurer had paid N475 million claims to its customers ahead of last year’s yuletide season.
“At African Alliance Insurance PLC, we are in the business of paying genuine claims as due,” said Joyce Ojemudia Managing Director/CEO, African Alliance Insurance PLC.
“This is more important as the year rolls to an end with many uncertainties that may affect the festivities. For us, we have promised we will be with them for life, this is our ongoing fulfillment of that mantra.Fortifying the claims unit with agile and nimble claims experts enabled by technology to join the team on ground. This has resulted in a faster processing time for claims. As we end this year on a good note, we are reassuring our customers that we won’t renege on our commitment to paying claims as due,” said Ojumudia.
Paying out more claims than premium earned amid inflationary pressures and currency volatility undermines the balance sheet.
Africa’s Alliance’s combined ratio has hit 222.70 percent in September 2021 from 196.79 percent as at September 2020, according to MoneyCentral calculations.
The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.
The balance sheet is overwhelmed by liabilities arising from mounting obligations as total liability of N49.41 billion as at September 2021 exceeded total assets of N45.09 billion, resulting in negative total equity of N4.32 billion.
Analysts say the insurer can reduce the combined ratio by investing in innovative products capable of lifting premium income needed to absorb expenses.
They added that it is important for management to implement cost control policies and avoid wastages.
Net premium income increased by 10.76 percent to N4.94 billion in the period under review from N4.46 billion the previous year.
Incorporated in 1960, African Alliance Insurance PLC is widely regarded as the strongest and most experienced life insurance specialist in these climes.
Operating out of its HQ in Lagos and 18 branches nationwide, the ISO certified firm recently demonstrated its ambitions in the retail space with the opening of two new branches to aid insurance penetration.