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Goldlink Insurance Auditors say Material Uncertainty Jeopardizes Insurers’ Future

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KPMG professional Services, a global accounting and  firm,  have said there is material uncertainty that may cast a doubt over Godlink Insurance Plc ability to continue as a going concern.

What is means is that if something urgent isn’t done by board of directors of the company to salvage the situations, the entity is a step away from slipping into bankruptcy as its financial conditions are increasingly deteriorating.

A cursory look at the audited financial statement of Goldlink Insurance showed it made a loss after tax of N1.06 billion as at December 2018, as against a profit of N692.69 million in 2017.

As at that date, its total liabilities exceeded total assets by N7.25 billion, which means the entity is technically insolvent; and a negative retained earnings or accumulated losses of N11.69 billion validates years of recurring losses that has wiped out shareholders’ value.

The insurer’s operating losses  mainly resulted from decreased premiums due to reduced business activities during the year. It also lacks the liquidity or strong cash position to invest in diversified products that could have underpinned earnings so that owners of the business are compensated for taking risk in the company.

It also had a shortfall in solvency margin of N12.21 billion as at December 2018 as against N11.24 billion the previous year. 

Interestingly,  the total admissible assets of the company less the net insurance contract liabilities and investment contract liabilities was in deficit of N7.21 billion in the period under review from N6.23 billion the previous year.

Investors and analysts have warned that the insurer may not meet the new minimum paid up share capital requirement set by the National Insurance Commission (NAICOM) even as the deadline to meet the target had been postponed due to the impact of the coronavirus pandemic on the industry.

The revised paid-up capital requires life Insurance business operators to raise their capital from N2 billion to N8 billion; General business from N3 billion to N10 billion, while that of Composite business has been jerked up from N5 billion to N18 billion.For Reinsurance business, the revised minimum paid-up share capital has also been reviewed upward from N10 billion to N20 billion.

The recurring or protracted losses and diminution in asset value that threatens the existence of Goldlink Insurance validates call in various quarters the there are too many weak insurers occupying space.

It is believed that the new rules by NAICOM, which is aggressively radical, could spur mergers and acquisitions in the industry that will pave the way for few but mighty companies that have strong capital and liquidity to take on more risk.

If banks can do it, then insurers can. Before 2005, there were 85 Deposit Money Banks (DMB) in the country, but today the country has 25 lenders with robust capital buffers to weather macroeconomic headwinds.

Goldlink Insurance expenses are growing faster than revenue, which is why it continues to grapple with deteriorating underwriting performance.

For instance claims expenses are 1.02 times net premium income, as combined ratio increased to 189.95 percent in December 2018 from 161.78 percent as at December 2017.

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.

Goldlink Insurance is also struggling with mounting claims that are undermining bottom line (profit).

Claims expenses spiked by 50.42 percent to N979.42 million as at December 2018 as against N651.12 million as at December 2017. 

Claims ratio otherwise known as loss ratio increased to 102.55 percent in the period under review from 64.02 percent the previous year. This means the insurer spends N102 on claims related cost to generate every N100 in premium income.

Goldlink Insurance posted an underwriting loss of N172.72 million, as a huge impairment on assets compounds the woes of an insurer grasping for breath. 

A N78 million investment means the insurers lacks the capital to invest in government securities that would have helped cushion the effects of deteriorating underwriting performance on bottom line (profit).

The company is currently under the Interim Management Board appointed in January 2019 by the National Insurance Commission (NAICOM). The Interim Board was charged with the responsibility of overseeing the affairs of the Company, recapitalizing and repositioning the Company. NAICOM recognized the Company as one of the operators in the insurance industry.

“The Interim Board is primarily responsible for managing the Company ultimately via recapitalization, and recovery of market share. In the event that the Company does not succeed in recapitalizing, this condition may constitute non-compliance with the regulatory capital requirements, which could lead to the withdrawal of the Company’s operating license. Also, the inadequate capital may threaten the Company’s ability to carry out its normal operations,” Goldlink said in its 2018 audited financial statement.

“These conditions indicate the existence of material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern, realize its assets and settle its liabilities in the normal course of business. The continuation of the Company’s operations is dependent upon future profitability, the ability of the Company to meet its regulatory capital requirement and to generate sufficient cash flows to meet its obligationsas they fall due,” said the company said.



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