Royal Exchange Nigeria Plc’s has been recording losses in the past six years, which deprives shareholders of dividends because the law only permits companies from rewarding their owners from distributable profit.
The company, with interest in general insurance, life insurance, finance, healthcare and microfinance banking, posted a loss after tax of N77.10 million in December 2020, from N1.32 billion in the corresponding period of 2019.
Interestingly, it has negative retained earnings of N4.05 billion as at December 2021, which was brought on by recurring losses.
Shareholders hoping to get a dividend may have to wait a while as the company cannot pay claims unless it writes off the past losses in the balance sheet.
The Companies and Allied Matters Act as amended stipulates that losses must be written off before dividends are declared to shareholders. It further states that a firm cannot even pay dividends when you make profit in the current year when its reserve is in the negative.
Little wonder Royal Exchange share price trades at N0.55 per share as investors are not attracted to it because there are no prospects of dividend payment since earnings have been dwindling.
Of course, the insurer was hard hit by the coronavirus pandemic that paralyzed business activities across the globe, and the dovish stance by the central banks that sent treasury yields crashing resulted in the loss of sizable income.
It is important to note that Royal Exchange is spending more on management expenses in generating revenue, albeit is operating in an unfavorable macroeconomic environment.
It pays good money to attract the best talents while acquiring the latest technology with a view to enhance cost optimization and seamless delivery of service to customers.
Total costs (Underwriting + management expenses) stood at N6.87 billion as at December 2020, which is 83.95 percent of net premium income, according to MoneyCentral calculations.
However, the claims ratio fell to 32.58 percent in December 2020 from 36.46 percent the previous year. Total claims expenses reduced by 15.14 percent to N2.66 billion from N3.17 billion as at December 2019.
Its combined ratio increased to 116.53 percent in the period under review from 115.53 percent as at December 2019.
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.
Royal Exchange is seeking to take advantage of synergies as a financial conglomerate in its drive for growth.
It wants to bolster its agricultural insurance initiatives as it is looking at ensuring its partnerships with government agencies, such as NIRSAL, as well as deepening its working relationship with relevant state governments and groups across the country with a view to taking advantage of the opportunities that arise in the agriculture space.
Such initiatives are needed to boost the company’s revenue so that it significantly absorbs claims and underwriting expenses.
Gross premium income (GPI) was up mere 4.40 percent to N15.02 billion in December 2021 from N14.44 billion as at December 2019.
Net premium income reduced by 5.97 percent to N8.19 billion in the period under review from N8.71 billion the previous year.