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Nigeria’s big insurers reported higher combined ratio for 2022 as high inflation, rising interest rates, and spiraling costs led to lower underwriting results as nearly all of their premiums go to paying off insured losses and expenses.
The average combined ratio of the 17 companies deteriorated to 116.54 percent in December 2022 from 109.23 percent the previous year, according to MoneyCentral calculations.
Of course, the combined underwriting profit dipped by 62.92 percent to N53.07 billion from N143.15 billion the previous year.
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.
Many insurance companies believe that the combined ratio is the best way to measure success because it does not include investment income and only includes profit earned through efficient management.
Analysts say that insurers will have to raise prices so as to compensate for higher inflation that ballooned the replacement costs of assets such as motor vehicles, buildings, and others.
A higher interest rate led to lower fair values of all major asset classes, which are the investments which are mark-to- market.
Since the first quarter of 202, interest rates have been rising on the back of a hawkish monetary policy of the central bank who seeks to tame a red-hot inflation.
The Russia and Ukraine war which led to a spike in commodities prices exacerbated inflation in a country where over 50 percent live on less than $1.98 a day while the vagaries in the price of crude oil and foreign exchange illiquidity forces the central bank to devalue the currency.
The Nigeria 10 year government bond has a 14.450 percent yield, according to data from World Government Bonds (WGB).
The Central Bank of Nigeria raised its monetary policy rate to 18% from 17.5% in its February 2023 meeting, marking the second interest rate hike in 2023.
Leadway Assurance Plc, the largest insurer by revenue and total asset, saw its combined ratio deteriorate to 128.74 percent in December 2022 from 110.20 percent the previous year.
The insurer posted an underwriting loss of N5.63 billion, mainly due to rise in yield on bond securities during the course of the year which resulted in an increase in liabilities of its life business.
AXA Mansard Plc’s combined ratio rose to 106.34 percent in December 2022 from 103.43 percent the previous year.
Coronation Insurance Plc combined ratio improved to 117.72 in the period under review from 190.26 percent the previous year.
Cornerstone Insurance Plc combined ratio reduced to 121.25 percent in December 2022 from 132.80 percent the previous year.
Lasaco Assurance Plc combined ratio improved to 121.32 percent in the period under review from 131.91 percent as at December 2021.
Consolidated Hallmark Insurance Plc combined ratio deteriorated to 118.41 percent in December 2022 from 113.78 percent the previous year.
Sovereign Trust Insurance Plc combined improved to 104.83 percent in the period under review from 110.68 percent the previous year.
Prestige Assurance Plc combined ratio increased to 139.80 percent in the period under review from 126.44 percent the previous year.
Linkage Assurance’s combined ratio fell to 153.02 percent in the period under review from 212.10 percent as at December 2021.
Guinea Insurance Plc combined ratio increased to 142.70 percent in December 2022 from 70.80 percent the previous year.
Verita Insurance Plc combined ratio deteriorated to 173.31 percent in December 2022 from 165.26 percent as at December 2021.
However, AIICO Insurance, Mutual Benefit Assurance, NEM Insurance, Regency Assurance, bucked the trend as they recorded combined ratio of 86.26 percent, 96.92 percent, 92.28 percent, 92.97 percent, and 86.53 percent that are below the 1o0 percent benchmark.
Despite poor underwriting results, insurers recorded net profit that was bolstered by investment income.