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Wednesday, March 22, 2023

Mutual Benefit’s Solvency Ratio Remains Strong at 378%

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Mutual Assurance Plc is well capitalised relative to the risks it has undertaken as evidenced by a 378 percent solvency margin that exceeds the 100 percent threshold.

The solvency margin is a minimum excess on an insurer’s assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.

The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations.

The lender’s total admissible assets of N11.40 billion exceeds the N3 billion minimum capital requirement by the regulator, which translates to solvency margin of N8.40 billion.

The ratio is important because it helps regulators to know firms that are not well capitalised to take on risk.

It must be noted that Mutual Benefit has an efficient underwriting capacity, and it is not paying out more in claims than it is earnings in premium, as the combined ratio is less than the 100 percent threshold.

The insurer returned to the path of profitability, thanks to a rise in interest income on fixed asset income as the insurer has maintained efficient underwriting results over a decade.

For the six months through March 2022, Mutual Benefit posted a profit after tax of N1.88 billion from a loss of N9.33 million.

The growth as the bottom line (profit) was largely driven by investment returns as investment income surged by 142.98 percent to N70309 million in June 2022.

In a high yield environment, Insurers pack their money in investment securities with a view to enjoying juicy yields that guarantee high returns that help compensate for unfavorable underwriting environments.

The Monetary Policy Committee of the Central Bank of Nigeria has unanimously voted to increase the benchmark interest rate (monetary policy rate) to 14% from 13%, being the second hawkish move by the apex bank in 2022 following the rising rate of inflation.

The insurer took advantage of the gradual reopening of the economy that bolstered business activities as it recorded double digit growth at the top line (revenue), and the impressive performance means customers are allured to the innovative products making an inroad into the market.

Gross premium income (GPI) increased by 23.52 percent to N7.98 billion in June 2022 from N6.46 billion the previous year.

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