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Insurers Investment Income Soars as Firms Chase Yield

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In the last eight years, insurers who are nimble to park their money in fixed income securities to enjoy juicy yields have generated N220.61 billion in investment income, according to data from their nine months financial statement.

Of course, Insurers Investment Income come from securities such as bonds and equity adds impetus to profit, which is why a lot of firms invest part of premium income in these securities.

For the first nine months through September 2022, the largest insurers collectively realised N40.36 billion as investment income, compared to N33.21 billion the previous year, according to data gathered by MoneyCentral.

Insurers are poised to enjoy more yield juiced returns as the incessant rate hikes by the central bank is expected to bolster investment returns, but there are concerns that a vagaries in interest rate could pile fair value loss on financial assets.

The monetary policy rate (MPR) has been increased to 16.5% from 15.5% in line with Broadstreet analysts’ consensus and the International Monetary Fund, IMF, expectation in a fight to curb the worsening consumer price index.

Another elephant in the room is the impact of rising inflation claims on the bottom line (profit) of firms. A red-hot inflation that shows no sign of cooling means the replacement cost of assets will skyrocket.

The combined ratios for most sector players is above the 100 percent benchmark, which means they have been flayed by a challenging operating environment.

Nigeria‘s headline inflation has risen to 21.09 per cent according to the Consumer Price Index (CPI) report for the month of October.

Separating the wheat from the sheaf shows that only the big insurers actually made money from investment securities because they have the liquidity to play in that space.

The smaller players earned abysmal income as they reel from deteriorating combined ratio, which validates the call by experts for another round of mergers and acquisition.

AIICO Insurance, the largest insurer by premium income, realised N12.61 billion in investment income as at September 2022, which is 32.36 percent higher than 2021’s N9.53 billion.

Custodian Insurance’s investment income was up 32.36 percent to N12.61 billion in the period under review from N9.53 billion the previous year.

AxA Mansard Insurance Plc earned N4.26 billion from investment securities in September 2022, which represents a 12.13 percent uptick from 2021’s N3.80 billion.

Linkage Assurance Plc investment income surged 101.38 percent to N4.26 billion in September 2022 from N2.11 billion the previous year.

While the non-financial firms have been squeezed by rising interest rates, the environment is a boon for insurers who are in need of cash.

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