AIICO Insurance Plc has emerged as the largest insurer by revenue in Africa’s largest economy even amid the unfavorable underwriting environment and the coronavirus pandemic that tipped the country into a second recession in five years.
The stellar performance was underpinned by excellent risk management strategy and the introduction on innovative products that are being accepted by customers.
AIICO Insurance posted gross premium income of N60.70 billion as at December 2020, and that compares with Custodian Investment Plc’s revenue of N58.14 billion; AXA Mansard, (N45.15 billion); NEM Insurance, (20.97 billion); Wapic Insurance (N17.45 billion); Cornerstone Insurance, (N15.86 billion), and Royal Exchange, (N14.74 billion).
AIICO Insurance recorded strong growth in both Life and Non-Life segments, and an efficient underwriting capacity means the combined ratio is below the 100 percent threshold.
More importantly, the company has been able to efficiently manage its life and annuity fund despite the high interest rate environment, which helped wipe out losses as it recorded underwriting profit.
Also, it has significantly reduced foreign exchange liability exposure given the IFC loan granted to it in 2015.
Despite rising claims brought on by increased mortality in its life segment, the company reported underwriting profit of N27.69 billion for the first quarter of 2021 against a loss of N131.02 million in the prior year period.
The underwriting income was also underpinned by N25.18 billion write back in change in the annuity fund; thitherto, the insurer has been grappling with an increase in technical reserves due to changes in yields on the government securities and changes in mortality and increased inflation.
This increase in life technical reserves was reportedly based on significant growth in new business, impact of changes in yields on the Federal Government securities and assumption changes such as mortality, withdrawal experiences, policy expenses and increased inflation.
AIICO Insurance is paying out more in claims than it is receiving in revenue. Its loss ratio increased to 77.37 percent in March 2021 from 58 percent the previous year. Total claims expenses spiked by 42.22 percent.
That’s why the combined ratio deteriorated to 109.10 percent in March 2021 from 88.47 percent the previous year, according to MoneyCentral calculations.
The insurer recorded negative income from investment securities of N31.70 billion, while investment income fell by 28.12 percent to N2.72 billion, no thanks to the central bank dovish stance that stoked a precipitous drop in fixed income securities.
There are concerns that the low yield environment will pressure future profit as investment returns are expected to deteriorate since insurers are not going to be getting high returns for packing their money in both short- and long-term government bonds.
Of course, the low interest rate entanglement undermined AIICO Insurance’s bottom line as net income reduced by 17.64 percent to N1.54 billion in March 2021 from N1.87 billion the previous year.