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Friday, March 24, 2023

AIICO Insurance’s Underwriting Conditions Worsen as Losses Hit N22.43bn

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The underwriting conditions of AIICO Insurance are fast deteriorating as the bigger threats to the company’s balance sheet are low yield environment and the Covid-19 crisis, meaning future earnings will be pressured.

The company posted an underwriting loss of N22.43 billion as at September 2020, which is a surge from a loss position of 2019’s N4.78 billion.

A cursory examination of the books of the largest insurer by total asset shows the losses were triggered by mounting obligations to policyholders and expenses relating to Life policies.

For instance, change in life and annuity fund surged by N149.7 percent to N30.04 billion in the period under review, while total net claims expenses spiked by 23.13 percent to N22.43 billion as at September 2020.

Notably, total underwriting expenses of N62.62 billion is 1.63 times net premium income, but increased investment income and income from investment from stocks, bonds, and other liquid assets spurred the insurer to the path of profitability.

The company realized N34.39 billion from investment income from financial assets, a 157.40 percent surge from 2019’s N15.94 billion.

The surge in investment income helped wipe out the underwriting loss, and AIICO Insurance posted pre tax profit of N4.66 billion in the period under review, albeit a reduction of 6.42 percent from the previous year.

There are clear indications that declining yields on treasury instruments due to the dovish tone of the central bank will pressure AIICO Insurance’s profitability in 2020.

The future is bleak for the insurance industry as broader fallout from the pandemic in terms of lower demand and investment returns, deterioration in the credit quality of fixed income securities and increased mortality rates from the virus could pressure earnings, reserves, and profitability of the life insurance sector in 2020.

For the non-life sector, a rise in COVID-19 related claims, premium rebates and lower interest rates could offset the increased demand for pandemic-related policies and reduce profitability.

Analysts are of the view that the inflow or asset side of insurers’ books could be impacted negatively since there has been a downward trend in new businesses on the back of economic down.

The retail and commercial customers have cut down on spending while renewals may have been delayed.

Nigeria is likely to enter recession in the third quarter after its economy contracted 6.1 percent in the second quarter. The government expects the economy to shrink as much as 8.9 percent this year.

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