Leadway Assurance, Nigeria’s largest insurer by assets is reeling from annuity products on its books on which it spent more money than it took in, costing the insurer a net N8.6 billion as at Full Year 2024.
Leadway Assurance’s Annuity product made up 57% of total Company insurance service expense of N80.9 billion as at December 2024.
The annuity business meanwhile contributed only 26.6% of Company insurance revenue for the period, which highlights the mismatch in terms of revenues versus costs to the insurance business from annuity.
Leadway recorded an insurance service expense of N46.13 billion on its annuity product in 2024, while annuity Insurance revenue came in at N45.9 billion leading to a net loss of N230 million.
Meanwhile, it also recorded an additional net loss of N8.37 billion on its annuity product in the form of net finance expense from insurance contracts issued, made up of N38.6 billion in losses from the difference between current rates and locked in rates, and a N30.32 billion gain from the effects of changes in interest rates and other financial assumptions.
The N46.13 billion insurance service expense attributable to its annuity product was the largest insurance expense item, followed by Group Life at N13.77 billion, Fire N7.28 billion, Life Insurance and Investment-linked Policies (LIP) at N5.53 billion and Credit life at N1.075 billion to make up the top 5 insurance service expense line by product.
Leadway annuity contracts are fixed annuity plans, whereby policyholders make a lump sum payment recognized as part of premium in the period when the payment was made, while constant and regular payments are made to annuity holders based on terms and conditions agreed at the inception of the contract and throughout the life of the annuitants.
Leadway invests its annuity funds in long tailed government bonds and reasonable money markets instruments to meet up with monthly/quarterly annuity payments to customers.
Insurance companies that sell annuities face several major financial issues, including: Longevity Risk, Interest Rate Risk, Liquidity Risk, Market and Credit risk among others, and must manage them carefully in order to maintain financial stability and meet long-term commitments.
In addition, there is Mark-to-market (MTM) risk on fixed income portfolios of insurers related to annuities they sell. This arises primarily because the insurer must periodically value its bond and fixed income holdings at current market prices rather than historical cost, which introduces volatility and potential financial strain on their balance sheet.
Insurers typically hold fixed income portfolios to back long-term liabilities such as annuities.
Mark-to-market risk introduces earnings and capital volatility from interest rate and credit spread fluctuations on fixed income portfolios.
This is critical for insurers like Leadway selling annuities, which are long-duration, liability-heavy products.
Leadway booked fair value loss on listed debt securities of N31.5 billion in 2024, although it did not break out those specifically linked to its annuity product.
Leadway Group reported Insurance service result loss of N3.02 billion as net reinsurance expenses surged to N99 billion, wiping out net insurance service revenue of N96.3 billion.
Group net insurance financial expenses of N53.3 billion also eclipsed investment income of N51 billion, leading to a net loss of N5.28 billion in terms of financial result.
The bottom-line was further hit by Group employee benefit expenses of N5.89 billion and other operating expenses of N19.93 billion, however it was boosted by Foreign exchange (FX) gain (on investment securities and cash holdings) of N103.47 billion (under other operating income) to help Leadway eke out a profit before tax of N73.57 billion.
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