Coronation insurance Plc has recorded its first net loss since 2013 as mounting obligation to policyholders results in deteriorating underwriting performance that hinders the firm from paying dividend.
For the year ended December 2021, Coronation Insurance posted a loss of N1.22 billion from a profit position of N1.20 billion as at December 2020.
It is noteworthy that the last time the insurer recorded a loss was in 2013, capitulating to the unfavorable underwriting environment.
The insurer pays out more in claims than premium it earns, which is why the combined ratio increased to 162.59 percent in 2021 from 157.86 percent the previous year, according to calculations from MoneyCentral.
The combined ratio is typically expressed as a percentage. 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.
Claims expenses surged by 85.57 percent to N5.53 billion in December 2021 from N3.20 billion the previous year. Claims ratio otherwise known as loss ratio moved to 64.41 percent in the period under review from 43.56 percent the previous year.
An industry expert who spoke with MoneyCentral on the condition of anonymity says insurers are reeling from rising claims because they do not charge enough premium rate to compensate for inflationary pressures and economic uncertainties.
He added that there has to be a benchmark rate to charge customers so as to breakeven and remain profitable in the face of the current economic realities.
Of course, insurers premium growth has been slower than the pace of increases in claims, which is why many record negative real underwriting results.
To exacerbate their already anemic situation is that investment income is not strong enough to bolster underwriting income as the low yield environment continues to undermine investment returns.
The largest listed insurers collectively paid claims of N137.19 billion in 2021, according to data gathered by MoneyCentral, according to data gathered from MoneyCentral.
That is 21.35 percent higher than 2020’s N113.05 billion, but insurers are also spending more on claims than premium they generate, sending the combined ratio for the majority of them above the 100 percent benchmark.
The combined average claims payout ratio for the listed entities increased to 49.57 percent in December 2021 from 47.09 percent as at December 2020.
Some analysts attribute mounting obligation to the reopening of the economy that underpinned business activities.
Of course, companies that derive a substantial portion of their business from motor insurance saw bottom-line growth during the pandemic. That is because claims payout drops as cars are parked in the garages.
However, as restrictions began to ease, claims volume started to bounce, as more people hit the road to go about their business.
The country’s real GDP grew by 4.03 percent year on year (yoy) in the third quarter of the year of 2020, according to the National Bureau of Statistics.
Insurers were exposed to losses relating to properties damaged across the country during the protest against police brutality called the “ENDARS”.
Further analysis of the financial statement of Coronation Insurance shows gross premium income (GPI) increased by 17.59 percent to N14.25 billion in December 2021 from N17.29 billion as at December 2020.
Net premium income (NPI) was up 17 percent to N8.60 billion in the period under review.