Niger Insurance Plc has posted a net loss of N5.15 billion to end the 2019 financial year, no thanks to a sharp drop in premium income across all business segments as the insurer is reeling from deteriorating underwriting conditions.
The company recorded a profit in December 2018, but there are concerns that recurring losses could result in technical insolvency, which casts a pall about its ability to meet the new minimum capital requirement imposed by the regulator NAICOM to strengthen the industry.
The company’s poor performance stems from huge operating expenses and lack of innovative products as revenues continues to dip, and compounding the woes of the entity is the tough and unpredictable macroeconomic environment.
For the year ended December 2019 gross premium income declined by 82.68 percent to N903.05 million as against N5.21 billion the previous year.
Net premium income followed the same downward trend as it slumped by 88.02 percent to N572.89 million in the period under review as against N4.78 billion as at December 2018.
A breakdown of gross premium income per product segment shows Fire Business saw a decline of 83.90 percent to N152.24 million as at September 2020; Marine, (-91.69 percent), and General Accident, (-62.83 percent).
There was a 51.73 percent reduction in Life Business to N1.01 billion in the period under review as against N2.10 billion the previous year, according to data compiled by MoneyCentral.
The company is paying out more money in claims than it is receiving in premium income as the combined ratio stood at ridiculous 1,071 percent as at December 2019 from 95.18 percent the previous year.
The combined ratio is typically expressed as a percentage. A ratio below 100 percent indicates that the company is making an underwriting profit.
Expectedly, Niger insurance posted underwriting loss of N2.10 billion as at December 2019 as against a profit of N2.81 billion recorded in the preceding period of 2018.
Its mounting obligations or total claims expenses of N2.38 billion is 4.16 times net premium income, while total management expenses of N3.19 billion are 5.57 times revenue.
Interestingly, claims ratio increased to 466.15 percent in the period under review as against 27.72 percent the previous year while management expenses ratio moved to 557.75 percent in the period under review from 54.91 percent the previous year.
Analysts have warned that the insurer could suffer further deterioration in earnings due to a low interest rate environment, the coronavirus pandemic, and difficult business environment.
When net treasury yields are high, insurers park their money in a short term financial instrument to make enough money that will help compensate for deteriorating underwriting conditions.
A string of punitive policies-such as cut in cash reserve ratio (CRR), the exclusion of non-financial companies from the official market CBN OMO market have sent treasury bills yields crashing into unprecedented levels.
The Coronavirus pandemic that disrupted the supply and demand side of the market forced many businesses to close shop during the lockdown period, which means there could be tepid insurance renewals next year.
Nigeria’s gross domestic product (GDP) shrank 3.6 percent in the three months through September from a year earlier, the statistics body said, as a lockdown to contain the Covid-19 outbreak, lower oil prices and rampant dollar shortages weighed on output.
The International Monetary Fund (IMF) forecasts that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020. But the global lender expects Nigeria’s economy to rebound by 2.6 percent in 2021.