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Mutual Benefit’s Underwriting Portfolio Hit by Covid-19 as Profit Slumps

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The underwriting portfolio of Mutual Benefit Assurance has been impacted by the coronavirus pandemic as mounting obligation to policy holders’ impacted negatively on profit.

For the first nine months through September 2020, Mutual Benefit’s underwriting profit reduced by 32.25 percent to N3.19 billion from N4.73 billion as at September 2019.

The deteriorating underwriting condition was largely by spiralling claims and underwriting expenses as the insurer paid more in claims than premium income earned.

Combined ratio increased to 106.68 percent in the period under review as against 99.33 percent the previous year. A ratio below 100 is considered favourable.

Total claims expenses spiked by 51.51 percent in the period under review from N3.63 billion the previous year. The insurer has spent money on claims to generate premium income as the loss ratio rose to 46.25 percent in September 2020 from 34.15 percent the previous year.

There has been a surge in heath, travel and business interruption, supply chain, and event cancellation claims due to the coronavirus pandemic that forced the government to impose a lockdown policy that paralyzed business across the country.

“Possibility of regulators asking for extraordinary tests to ensure insurers can withstand the immediate and knock-on impact of the virus,” said analysts at PWC.

Mutual Benefit’s net income dipped by 6.27 percent to N2.39 billion as at September 2020, despite a 12.17 percent increase in net premium income.

The insurer’s investment income dipped by 2.24 percent to N1.74 billion as at September 2020 from N1.78 billion the previous year.

The future is bleak for insurers because the low yield environment and Covid-19 related risks means their investment income will no longer make up for a deteriorating underwriting environment.

When yields are high insurers pack their money in government securities and earn an income.

“Broader fallouts from the pandemic in terms of lower demand and investment returns, deterioration in the credit quality of fixed income securities and increased mortality rates from the virus could pressure earnings, reserves, and profitability of the life insurance sector in 2020,” said analysts at Afrinvest Securities Limited.

”For the non-life sector, a rise in COVID-19 related claims, premium rebates and lower interest rates could offset the increased demand for pandemic-related policies and reduce profitability,” said the analysts.

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