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Monday, May 29, 2023

African Alliance Insurance is Technically Insolvent

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Beleaguered African Alliance Insurance Plc cash flow is not sufficient to meet its long term liabilities, raising concerns about the going concern status of a firm fighting for its life.

The third quarter financial statement for 2022 shows total liabilities of N43.09 billion exceeding N37.04 billion in total assets, which resulted in a negative shareholders’ fund of N6.04 billion.

In the past few years, the company has been posting losses as N34.96 billion in accumulated losses sit on the balance sheet. It posted a loss after tax of N733.55 million as at December 2022.

Investors are now paying attention to the financial strength of entities following the collapse of three big regional banks in the United States which stoked financial turmoil and selloffs of equity in a country at the brisk of a recession.

It is important to note that African Alliance does not have enough cash flow to cover claims, which raises concerns about the underwriting and asset/liability management of the company.

For instance, claims expenses of N7.15 billion are 1.84 times net premium income, according to MoneyCentral calculations.

The combined ratio stands at 184.11 percent in September 2022 from 222.71 percent the previous year, according to MoneyCentral calculations.

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.

There has been slow growth in revenue as expenses are growing t a faster pace than premium income.

Net premium income (NPI) increased by 10.52 percent to N5.46 billion in September 2022 from N4.94 billion the previous year.

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