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Insurers’ Underwriting Profit Dips on Higher Yields  

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The underwriting profit of insurers who are reeling from claims inflation have slumped, no thanks to a rise in fixed income yields that resulted in lower valuations for life and annuity fund liabilities.

The largest insurers posted underwriting profit of N42.71 billion in September 2022, which is 29.29 percent lower than 2021’s N60.41 billion, according to data compiled by MoneyCentral.

Underwriting profit is the net of premiums an insurer receives, minus losses paid out and administrative expenses over a given period. It does not include the gains made from invested premiums.

AIICO Insurance Plc, the largest insurer by premium income in Nigeria, was the major drag on the industry underwriting expenses as it expensed N13.64 billion in change and life and annuity funds, that combined with mounting obligations to policyholders resulted in a 226.40 percent surge in total underwriting expenses to N49.30 billion as at September 2022.

Rising underwriting expenses means the insurers’ underwriting profit dipped by 81.84 percent to N5.40 billion as at September 2022.

AXA Mansard Insurance Plc saw underwriting profit fall by 24.53 percent to N6.33 billion as at September 2022 from N8.39 billion the previous year.

Of course, rising claims brought on by stubborn inflation that balloons replacement costs of assets also contributed to a reduction in underwriting profit as sector payers are paying out more in claims than the premium they are receiving.

The Nigeria 10 year government bond has a 14.021% yield, according to data from World Government bonds.

Nigeria’s inflation rose to 21.47% in November from 21.09% recorded in October, representing the 10th consecutive monthly increase since the start of the year.

It is noteworthy that rising bond yields is also a boon for those insurers who invested in investment securities as it adds impetus to investment income which lifts profit.

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.

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