Cornerstone Insurance Returns to Profit as Claims Expense Mounts

Cornerstone Insurance Nigeria Plc returned to profit in March, driven by realized gains on foreign exchange, but obligation to policy holders are mounting, raising concerns about underwriting capacity.
The Nigerian insurer posted a profit after tax of N475.11 million as at March 2020 from loss of N98.37 million in 2019.
The major driver of profitability was a 104.02 percent surge in net foreign exchange gains to N522.69 million in the period under review from N256.19 million the previous year.
A de-facto devaluation of the currency by the central bank in response to global macroeconomic caused by the coronavirus pandemic is a boon for the insurer as dollar denominated assets could spike.
The Apex bank weakened the Naira to $360/$ from N305, as it continues to shield the external reserve from the vagaries of crude oil price and Covid-19 induced shocks.
Cornerstone Stone Insurance has seen acceleration in obligation to policy holders, and experts expect future claims expenses to surge on the back of Covid-19 induced shocks.
Loss ratio increased to 71.12 percent as at March 2020 from 56.80 percent the previous year, according to Money Central calculations. What this means is that the insurer is spending more on claims to generate each unit of premium income.
Total net claims expenses after deducting recoverable was up 23.06 percent to N1.01 billion as at March 2020 as against N825.28 million the previous year.
According to a recent report by Cornerstone Insurance, only 2.5 million out of the 12 million registered vehicles in Nigeria have genuine insurance.
The report, by implication, shows that 20.8 per cent of the 12 million registered vehicles have genuine insurance covers.
“Not many vehicle owners are aware of this, but it has been proved that only 2.5 million have genuine insurance cover out of the 12 million registered vehicles in the country. So it’s very important vehicle owners patronize genuine insurance companies,” the firm said.
Cornerstone Insurance gross premium written was down by 4.60 percent to N4.57 billion as at March 2020 from N4.79 billion the previous year.
Net premium income fell by 2.06 percent to N1.42 billion in the period under review as against N1.45 billion the previous year.
The decline in net premium income was due to a 20.64 percent rise in reinsurance expenses to N1.87 billion in the period under review, which wiped out the small uptick in gross premium income.
Insurers in Africa’s largest economy are struggling to magnify their revenue like their peers in advanced countries as they operate in a tough operating environment.
Lacks of skilled employees, weak regulatory framework, and inadequate access to technology are increasingly undermining growth.
The insurance industry in Nigeria is still growing and developing. However, it only contributes 0.7 percent toward Gross Domestic Product (GDP). This is very low compared to other markets such as South Africa with penetration levels of around 12 percent.
Approximately only 1.5 percent of all Nigerian adults are covered by insurance today.
Cornerstone Insurance is grappling with deteriorating underwriting capacity as combined ratio increased to 159.57 percent as at March 2020 from 145.42 percent the previous year. Underwriting profit was down 39.83 percent to N223.30 million as at March 2020.
A combined ratio of more than 100 percent means that an insurance company had more losses plus expenses than earned premiums and lost money on its operations.
However, a company can have a combined ratio above 100 percent but still be profitable overall because there could be sizable additional revenues from investments.
Cornerstone Insurance incurred total operating and underwriting expense of N1.25 billion in the period under review, which is more than 88.73 percent of net premium income, according to Money Central calculations.