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Wednesday, February 8, 2023

Africa Alliance Insurance turns Profit on Investment in Bonds

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After many years of recurring losses, Africa Alliance Insurance Plc has returned to the path of profitability, thanks to investment in government securities that helped compensate for deteriorating underwriting performance.

For the first six months through June 2020, Africa Alliance posted profit after tax of N597.61 million from a loss of N2.36 billion as at June 2019.

The company realized N1.27 billion in investment income on bonds that added impetus to profit even as it recorded an underwriting loss of N1.63 billion.

Analysts and investors have warned that the because of the low yield environment, investments in government securities may not be a panacea for the medium term and the insurer may continue to grapple with huge total costs eroding profitability.

Pundits are on point as African Alliance’s total claims expenses of N2.88 billion are 1.24 times net premium income, just as combined ratio has increased to 234.09 percent in June 2020 from 239.91 percent the previous year.

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.

MoneyCentral reported two weeks ago that the auditor of Africa Alliance– Deloitte & Touche- doubted the ability of the entity to continue as a going concern.

For instance, total liability of N50.84 billion as at June 2020 is greater than total asset of N40.20 billion, which resulted in negative retained earnings of N10.64 billion.

As a result of recurring loses over past years, the company has accumulated losses or negative retained earnings of N36.87 billion.

Further analysis of the financial statement of the company shows net premium income dipped by 20.37 percent to N2.32 billion in the period under review as against N2.91 billion the previous year.

Experts have warned that the insurer may not able to meet the new minimum capital requirement set by the National Insurance Commission (NAICOM) and the entity has exposed itself to inevitable takeover.

However, they added that capital injection by owners or a well orchestrated scheme of capital reconstruction of reorganization could turn the company around.

The problem is there may not be time to implement the aforementioned strategies as the dead line to meet the new recapitalization deadline is next year.

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