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Monday, March 27, 2023

There are Only Six Big Insurers in Nigeria

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The insurance industry is dominated by the big six insurers-Leadway Assurance Limited, AIICO Insurance Plc, Custodian Investment Plc, FBN Insurance Limited, NEM Insurance Plc, and AXA Mansard Insurance Plc- who are members of MoneyCentral’s proprietary Insurance index.

These companies were ranked based on financial metrics such as Combined ratio, asset size, return on equity, revenue size, solvency ratio, and net income. And the mnemonic symbol for this parameter is “CARRSAN’’

The big six are the most capitalized, efficient, profitable, and liquid companies in the country, which is why they have been able to survive the unfavorable underwriting conditions.

Going through their books, the majority of Nigerian insurers stayed resilient during the coronavirus pandemic as they recorded strong earnings growth that was supported by interest income on both short- and long-term government securities.

Perhaps more interesting is the recapitalization deadline by the regulator. Yet  a lot of players in the industry have not met the deadline and there are no positive signs that they will. This is because their capital is deteriorating, which means they could be bought out by the well capitalized companies.

There are indications that more banks are going to adopt the Holding Company (Holco) structure that will pave the way for them to buy insurance companies.

LEADWAY Assurance is the most Solvent and has the largest asset

LEADWAY Assurance is most capitalized relative to risk taken in Nigeria, which means it has the ability to meet its debt obligations and other financial commitments.

The insurer shrugged off the fear that the Covid-19 crisis as its solvency margin stood at 987 percent in December 2020, and that compares with AIICO Insurance, 351 percent; NEM Insurance, 412 percent, AXA Mansard, (454.50 percent), and Consolidated Hallmark, (238.60 percent).

LEADWAY Assurance has a total asset of N525.43 billion as at December 2020, which is the largest among peers.

AIICO Insurance is largest by premium income

AIICO Insurance is the largest company by gross premium income in Africa’s largest economy, which validates its market penetrating products.

There were increases along the life and non-life segment, and there are expected that revenue will increase in 2021 on the back of rebound in economic activities.

The insurer posted gross premium income of N60.70 billion as at December 2020, and that compares with Custodian Investment, (N58.14 billion); FBN Insurance, (N47.08 billion); AXA Mansard Insurance, (N45.11 billion), and NEM Insurance, (N20.98 billion).

FBN Insurance has the strongest ROE

FBN Insurance has delivered more returns to its shareholders than any insurer in the country. If the insurer were a listed entity, it would have an attractive valuation.

What this means is that FBN Insurance has utilized the resources of shareholders in generating higher profit.

It recorded return on equity of 41.55 percent as at December 2020, and that compares with AIICO, 19.51 percent; NEM Insurance 23.48 percent; Custodian Investment, 22.23 percent; Mutual Benefit, (18.73 percent); AXA Mansard, 12.70 percent.

 NEM Insurance has lowest combined ratio

NEM Insurance has the lowest combined ratio among peers, which means it’s able to earn more in revenue than it pays out in claims. The lender’s cost control mechanism helped bolster operational efficiency even amid inflationary pressures, incessant devaluation, and decrepit infrastructure.

 Its stellar underwriting performance relative to peers is desirable and the Company is now  well-capitalized and poised for sustained growth.

Analysts at Afrinvest Securities are of the view that it is poised to continue to deliver strong numbers into the foreseeable future.

The company that has been paying steady dividends and sustaining underwriting profit is the toast of many investors who find its valuation attractive.

Custodian Investment emerges as the most capitalized and profitable  

Custodian Investment is the most capitalized insurer in Africa’s largest economy.

It has market value of N34.99 billion as of 2:00 pm in Lagos, and that compares to AXA Mansard (N34.40 billion); AIICO, N22.53 billion; Consolidated Hallmark, N8.53 billion; NEM Insurance,  N7.17 billion; Coronation Insurance, (N13.11 billion), and Mutual Benefit Assurance, 5.02 billion.

AXA Mansard Maintains strong operating efficiency

Despite the tough operating and challenging environment, AXA Mansard’s combined ratio of 99.98 percent was within the international benchmark as the insurer’s return on equity is growing faster than total operating expenses.

The insurer’s HMO business would continue to be the major driver of growth, thanks to increased awareness on health insurance benefits.

More importantly, the company is spending less on claims and expenses in generating premium income, and its attractive valuation is an opportunity to buy into the stock.

Claims expense ratio fell to 62.86 percent in December 2020 from 66,53 percent the previous year; management expense ratio reduced to 25 percent in the period under review from 30.61 percent as at December 2019.

As the company is sufficiently capitalized and pious to meet the recapitalization deadline, it is expected the stellar operating performance will be maintained.

In their coverage universe, analysts at Afrinvest Securities see significant upside in Mansard. Their optimism stemmed from the insurers’ strong risk management among composite insurers and the positive effect of the termination of the annuity funds on bottom line.

Outlook for the industry

We expect the top line of these big six insurers to remain strong on the back of the roll out of vaccines and relation of social distancing.

Since the Life segment recorded lower mortality or death rates due to the coronavirus pandemic compared to global peers, they are expected to magnify earnings this year. Also, the general business will see growth on the back of compulsory third party insurance and good regulations capable of unlocking the potential in the sector.

There are indications that the Holdco structure adopted by banks will underpin mergers and acquisitions as there are too many weak insurers waiting to be taken over.

Recall that Heirs Holdings Group made an inroad into the insurance space with the launch of two firms: Heirs Insurance Limited, and Heirs Life.

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