Leadway, AIICO, Consolidated Hallmark, Solvency Ratios Remain Strong

The five largest insurers in Africa’s most populous nation continue to be well capitalised relative to risk taken as their solvency ratios are in excess of the regulatory minimum of 100 percent.

Leadway Assurance Limited, the largest insurer by total assets, remains robust at 960 percent in 2021; AIICO Insurance Plc, 332 percent; AXA Mansard Plc, 318.70 percent; Consolidated Hallmark Plc, 280.31 percent, and NEM Insurance Plc, 306.90 percent, according to data gathered by Afrinvest Securities.

In the insurance industry, the % Solvency ratio is an expression of efficient capital management.

The indicator reflects the ability of an insurance company to meet its obligations to beneficiaries and policy holders.

By indicating whether an insurance company’s cash flow is sufficient enough to cover its long-term liabilities, the % Solvency ratio is also an important measure of risk control and risk mitigation in the insurance industry.

The improvement in solvency ratios of these five big insurers reflect higher investment income supporting earnings, and the ratio will be stronger as yields on investment securities are expected to rise on the back of the recent hike in monetary policy rate by the central bank that seeks to tame rising inflation and stabilize the economy.

On June 14, 2022, the central bank announced an increase in the interest rate, from 11.5% to 13%, a 1.5 percentage point hike that took effect immediately.

The Nigeria 10 year government bond has a 11.212 percent yield, according to World Government Bonds.

The regulator is steadfast in ensuring that companies are well capitalised so that they can take on more risk and compete with theirs across the continent and globally.

Nigeria Insurance Commission (NAICOM), the body that regulates insurance activities in Nigeria had jerked up the minimum capital requirement, but it has been capitulating to pressures from sector players and the National Assembly to postpone the deadline for recapitalization.

It is noteworthy too that the recapitalisation threshold are: N8.0bn for life Insurers, N10.0 billion for non-life insurers, N18.0 billion for composite insurers.

“Although there is no definite deadline for the completion of the program as of this time, we believe that the success of the program is imperative to upscaling the industry’s underwriting capacity for big ticket risks, unlock growth, and elevate the industry’s global competitiveness,” said analysts at Afrinvest.

“Against this backdrop, we advocate for NAICOM to hold a round table discussion with relevant stakeholders to address these incessant tussles and avert further delays to the program’s completion,” said the analysts.

Interestingly, NAICOM is no longer a toothless bull dog and it is taking more stringent actions against firms who can no longer continue to exist in the foreseeable future.

Last week, it cancelled the Certificate of Registration of Niger Insurance Plc and Standard Alliance Plc.

Of course, some insurers are technically insolvent and are occupying space, which is responsible for poor valuation as investors’ apathy towards sector players stocks continue to heighten.

Analysts say the regulator is mulling the introduction of risk-based capitalization that would emulate the capitalisation requirement in the banking sector.

There are indications that the looming liquidation of Niger Insurance and Standard Alliance could herald mergers and acquisition as some players who cannot meet the recapitalization deadline may be up for grabs.

Not too long, Tangerine Life Insurance Limited (backed by Verod Capital) merged with ARM Life while Tangerine General Insurance Limited acquired and rebranded to Law Union & Rock Insurance Limited.

Recently, NAICOM gave a no objection approval for Norrenberger Advisory Partners Limited to acquire 100% equity stake in International Energy Insurance Company Plc.