Exchange differences on Deawoo loan sinks Sunu Assurance

A foreign exchange translation difference on Deawoo loans help tipped Sunu Assurance Nigeria Plc into a loss position even though the insurer recorded strong revenue growth.
For the first three months through March 2020, Sunu Assurance posted a loss after tax of N763.90 million from N222.87 million losses it recorded in 2019.
The loss was triggered by a 504.25 percent surge in exchange difference on Deawo loans to N527.60 million, which wiped out gains from revenue and investment income.
Early this year, the board of the Nigerian insurer had announced its intention to ask for an approval from shareholders of the company to convert the debt it obtained from Daewoo Securities (Europe) Limited to equity at a “prevailing market price.”
With negative retained earnings of N6.15 billion as at March 2020, the company has accumulated deficit and it has more debt than it has earned.
A diversified product base and excellent marketing strategy may spur revenue growth for the insurer amid protracted economic downturn.
Gross premium written spiked by 72.72 percent to N1.47 billion as at March 2020, as against N851.21 million the previous year.
Gross premium income and net premium income followed the same growth trajectory as they increased by 20.37 percent and 23.68 percent to N915.87 million and N818.62 million from N742.42 million and N634.11 million the previous year.
The company said it is determined to grow its business consistently over the next five years to become one of Nigeria’s 10 largest insurance companies.
In an article published by the Punch Newspaper, Samuel Ogbodu, managing director of Sunu Assurance, said the company will leverage on parent company (SUNU Group’s) expansive retail knowledge and expertise to drive retail insurance in Nigeria and build long-term growth.
Nigeria has a population of 200 million, and approximately only 1.5 percent of all the country’s adults are covered by insurance today.
SUNU Assurance Group had in 2016 acquired 60 per cent equity of the former Equity Assurance Plc and renamed the company SUNU Assurance Nigeria Plc.
Sunu Assurance Nigeria has a combined ratio of 141.06 percent as at March 2020, a figure that is higher than the 100 percent benchmark. What this means is that the company has been paying out more in claims than revenue it generates.
Claims expenses were up 66.30 percent to N439.35 million as at March 2020, from N264.19 million as at March 2019.
Claims ratio increased to 55.41 percent in the period under review as against 41.64 percent the previous year.
Total operating and underwriting expenses stood at N679.16 million as at March 2o20, which are 85.66 of net premium income.
Money Central has found that insurers in Africa’s largest economy are spending their way into the future as expense ratio continues to erode profitability.
When expenses overwhelm operating profit, then shareholders will receive meager dividend for investing their money in the firm.
The average dividend per share of insurers is N0.07, and which is why investors have continually refused to invest in the sector.
Little wonder most insurers’ share prices are trading below N0.50 for an indeterminable period of time. Some of them had shares stuck at N0.50 for so many years before the Nigerian Stock Exchange removed a cap that sent stock price crashing like a pack of cards.