Guinea Insurance Plc is reeling from receding revenue as rising claims and lower investment returns means a loss is inevitable for the insurer, raising concerns about its ability to surmount a low yield environment.
For the year ended December 2020, Guinea insurance posted a loss of N227.67 million from a loss position of N795.04 million as at September 2019.
It has negative retained or accumulated losses of N2.02 billion in its balance sheet, and this is due to recurring losses.
A cursory look at the financial statement shows reduction in management expenses helped shrink losses, but the company is struggling with deteriorating underwriting conditions.
As a result of lack of innovative products capable of penetrating the Nigerian market, gross premium income fell by 16.23 percent to N1.08 billion in 2020 from N1.29 billion the previous year.
Similarly, gross premium income reduced by 10.55 percent to N1.05 billion in the period under review as against N1.17 billion the previous year.
Analysts attribute weak premium growth among insurance companies to low premium penetration as over 50 percent of a population of 100 million are living in abject poverty, which is why they can not take a cover.
Rising inflation is stealing workers wages, eroding the purchasing power of consumers, and taking up a cover is the least of their problems since they have to insure their stomachs.
Nigeria’s inflation rate for the month of March 2020, rose to 18.17 percent from 17.33 percent recorded in February 2020, according to a recent report by the National Bureau of Statistics (NBS).
While the country exited its second recession in six years in the quarter of last year, the International Monetary Fund (IMF) and The World Bank have warmed that recovery remains slow.
Of course, there is a relationship between economic growth and insurance penetration as insurance companies in rich countries contribute more to the economy.
However, a company like Guinea insurance lacks the financial strength to collect relatively small premiums from individuals in the economy as it is struggling with deteriorating underwriting performance, even as it posted underwriting profit.
Combined ratio moved to 160.31 percent in 2020 from 152.75 percent the previous year.
Consequently, the insurer posted a negative underwriting result of N440.37 million, according to MoneyCentral calculation.
The combined ratio measures the money flowing out of an insurance company in the form of dividends, expenses, and losses. It is typically expressed as a ratio.
A a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums. Even if the combined ratio is above 100 percent, a company can potentially still be profitable because the ratio does not include investment income.
Many people believe the combined ratio is the best measure of profitability because it does not include investment income and other income that are subject to the vagaries of macroeconomic shocks.
The dovish stance of the central bank in recent times has resulted in lower yield, which threatens future profitability of insurers because investment income is expected to wane.
Interestingly, deteriorating fixed income securities was caused by the decision of the central bank to bar individuals and non-corporate from its Open Market Operations (OMO).
Guinea Insurance is not saved from the pang of the monetary policy shift as investment income dipped by 50.94 percent to N104.82 million in the period under review as against N210.05 million
The company’s claims expenses were down 39.12 percent to N155.21 million in December 2020 from N254.98 million the previous year.
Its claims ratio fell to 21.14 percent in the period under review from 28.25 percent the previous year.