The largest listed insurers in Nigeria are paying out more money in claims than they are receiving from premiums as they are exposed to huge losses due to the EndSARS protest that occurred late last year.
While the rising claims shows companies are meeting their obligations to policyholders, mounting obligations have resulted in underwriting losses, and that is even on top of the unfavorable underwriting environment that they operate in.
The combined claims expenses of the 17 largest insurance companies spiked by 34.45 percent to N133.04 billion in December 2020 as against N98.95 billion as at December 2029, according to data compiled by MoneyCentral.
Interestingly, the average industry claims ratio otherwise known as loss ratio increased to 56.27 percent in December 2020 from 43.22 percent the previous year, based on MoneyCentral Calculations.
A higher loss ratio means a company is spending more on claims related expenses to generate premium income.
Some analysts have attributed mounting obligations to victims of the protest against police brutality (EndSARs) that resulted in loss of properties.
Twenty-five insurance companies have recorded claims totaling N20.4bn from losses that emanated from the #EndSARS protests which occurred in the country in October, according to data from the Nigerian Insurers Association (NIA).
The figures from the NIA also revealed that a lot of companies have set aside a reserve of N13.2 billion to settle the claims.
Director General, NIA, Yetunde Ilori, said “Out of a total of 1,661 claims that we have received, 143 have been fully settled; a total of N105m claims had been paid; 539 claimants are yet to substantiate their claims with the necessary documents; seven claims were repudiated because they were not covered by any of the policies; while 972 claims are going to be settled.”
On October 21 2020, there was bedlam and pandemonium as Nigerian youth revolted against insidious oppression, extortion, and brutality by the police that left many people dead at the Lekki toll gate.
The insurance association plans to use the fallout from the protests to increase awareness in the nation of about 200 million of covering their assets against potential losses.
It targets doubling penetration in the next five years from less than 1 percent, by improving the timeliness of settlements, and working with authorities to enforce compulsory policies like motor insurance.
Coronavirus Pandemic Compounds Insurers’ Woes
There have been mounting obligations in the Life and Non-Life segment as the coronavirus pandemic exposed insurers to huge business interruption and event cancelations claims.
For the Life segment, costs include death and disability claims, and drug costs. Other losses include adverse movements in the financial markets, including declines in bond yields, equity markets, and real estate, reducing profitability; and business interruption and potential impact on revenues.
One of the most difficult conundrums for insurers is the deterioration in fixed income securities that could undermine future profitability as investment income is expected to take a beating.
Without income from investment securities that helped compensate for spiraling claims expenses and slow growth in premium income, a lot of insurers would have recorded huge losses even as the combined ratio has exceeded the bench mark.
The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.
“Broader fallouts from the pandemic in terms of lower demand and investment returns, a significant deterioration in the credit quality of fixed income securities and increased mortality rates from the virus could pressure earnings, reserves and profitability of 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.
A breakdown of claims shows AIICO Insurance Plc claims expenses increased by 24.72 percent to N31.65 billion as at December 2020 from N25.38 billion the previous year. Loss ratio rose to 59.97 percent in the period under review from 57.98 percent the previous year.
The largest insurer by total asset saw 21.73 percent rise in claims on Life Insurance to N28 billion in the period under review from N23 billion while Non-Life Segment spiked by 52.53 percent to N11.57 billion in December 2020 from N7.60 billion the previous year.
AXA Mansard Nigeria Plc’s claims expenses were up 13.88 percent to N19.91 billion in December 2020 from N17.49 billion the previous year.
A further analysis of the largest insurer by market capitalization’s claims during the period shows Non-Life reduced by 16.38 percent to N4.95 billion in the period under review while Life segment was up 53.67 percent to N2.77 billion as at December 2020.
Custodian Investment Plc’s claims expenses were up 67.62 percent to N47.12 billion in the period under review as against N28.11 billion the previous year. Its loss ratio moved to 139.06 percent in December 2020 from 100.31 percent the previous year.
Mutual Benefit’s claims expenses were up 32.22 percent to N7.83 billion in December 2020 from N5.92 billion the previous year while claims ratio increased to 48.93 percent in the period under review as against 38.76 percent the previous year.
NEM Insurance Plc claims expenses were up 20.62 percent to N4.74 billion in December 2020 from N3.93 billion the previous year while loss ratio increased to 32.18 percent in the period under review from 31.21 percent the previous year.
Wapic Insurance Plc claims expenses were up 19.03 percent to N3.63 billion in December 2020 from N3.05 billion the previous year while claims ratio increased to 48 percent in the period under review from 39.08 percent the previous year.
Cornerstone Insurance Plc claims expenses were up 13.11 percent to N3.47 billion in December 2020 from N3.06 billion as at December 2019 while claims ratio moved to 59.07 percent in the review period from 46.58 percent the previous year.
Consolidated Hallmark Insurance Plc claims expenses were up 26.73 percent to N2.12 billion in December 2020 fr0m N1.67 billion the previous year while loss ratio 37 percent in the period under review as against 33.96 percent the previous year.
Sovereign Trust Insurance Plc claims expenses grew by 60.18 percent to N3.48 billion in the period under review as against N2.17 billion the previous year while loss ratio increased to 53.28 percent in the period under review as against 43 percent the previous year.
Niger Insurance Plc claims expenses were up 157.45 percent in the period under review as against N608.69 million the previous year while loss ratio rose to 171.28 percent in the period under review from 42.41 percent in the previous year.