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Technically Insolvent Goldlink, Africa Alliance, International Energy Due For Takeover

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Goldlink insurance Plc, African Alliance Plc, and International Energy Insurance Plc are technically insolvent as their total assets cannot cover liabilities, which means they could be acquisition targets for firms that have strong capital bases.

These insurers are reeling from deteriorating underwriting performance as evidenced in huge and burdensome claims, underwriting, and management expenses as an economic downturn and difficult operating environment continues to hobble revenue.

Auditors have issued warnings that some of them are on the brink of bankruptcy, issuing a qualified report, signaling their financial statements have been stigmatised.

Analysts fret that these firms do not have the financial ammunition to meet the new recapitalization scheme of the National Insurance Commission (NAICO)

Goldlink, International Energy, and African Alliance have a combined N76.40 billion negative retained earnings on the capital side of their balance sheet, as they have been recording more losses than profit throughout their existence.

What this means is that shareholders will not be paid a dividend since the law prohibits beleaguered companies from making such distribution.

The three companies are not swift or prompt in submitting their financial statement to the Nigerian Stock Exchange (NSE), and disappointingly, the relevant authority has not yet punished or delisted them from the exchange.

The 2018 audited financial statement of International Energy Insurance (IEI) showed total assets of N7.59 billion is way below total liabilities of N19.46 billion, resulting in a negative shareholders fund of N12.06 billion.

Also, it has negative retained earnings of N24.19 billion and posted a loss after tax of N4.17 billion.

Interestingly, the insurer suffered deteriorating underwriting performance as it posted underwriting loss of N157.63 million while the combined ratio weakened to 469.03 percent in December 2018 from 330.24 percent as at December 2017.

The combined ratio is typically expressed as a percentage. 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.

It is noteworthy that the net loss was also largely driven by a finance cost of N3.14 billion, which represents a 161.11 percent upsurge from 2019’s N1.84 billion.

A breakdown of the N3.14 billion finance cost shows interest of borrowing of N1.03 billion and N2.11 billion foreign exchange loss.

The company had not been able to meet its obligations Daewoo securities (Europe) Limited, now Mirae Asset Management (UK) Limited which had resulted in additional interest charges on unpaid principal and interest.

As a result of the material uncertainties surrounding the company’s future, external auditors have cast significant doubt over the ability of the insurer to continue as a going concern.

IEI is not cost efficient, which is why claims and underwriting expenses are increasing eroding profitability.

For instance, claims expenses of N522.12 million is 1.12 times net premium income, while management expenses are 3.33 times premium income.

When expenses are growing at a much faster pace than revenue, a company will continue to wallow or flounder. And that double whammy for a listed entity because its share price will depreciate as investors will dump shares since the company cannot guarantee them a reasonable return on investment.

The Nigerian insurer can no longer carry out oil and gas business and this led to declining revenue over the years.

Net premium income dipped by 41.67 percent to N462.67 million as at December 2018 while gross premium income fell by 44.01 percent to N667.22 million in the period under review.

The Company No Longer Golden

Goldlink Insurance suffers from technical insolvency as total liability of N9.03 billion as of December 2018 exceeded total assets of N1.78 billion, which resulted in negative retained earnings of N7.25 billion, according to MoneyCentral Calculations.

It has accumulated losses of N11.69 billion in its balance sheet while net loss for the ended 2018 stood at N1.06 billion.

The Nigerian insurer posted underwriting loss of N172.72 million while the combined ratio deteriorated to 189.94 billion in December 2018 from 161.78 percent the previous year as it pays more incurs more in operating cost than revenue it generates.

Claims expenses, which exceeds premium income, spiked by 50.42 percent to N979.42 million in the period under review from N651.12 million the previous year. Loss ratio otherwise known as claims ratio increased to 102.55 percent in December 2018 from 64.02 percent in 2017, according to MoneyCentral calculations.

African Alliance

African Alliance Plc is reeling from recurring losses as it has negative retained earnings of N40.52 billion as of September 2020 in its capital structure.

It is not surprising that the insurer’s total liabilities of N57.80 billion exceeds the total asset of N40.91 billion, which resulted in negative retained earnings of N13.86 billion, according to MoneyCentral calculations.

Despite N6 billion realized from investment income, the company posted a loss after tax of N3.20 billion.

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