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AIICO, Africa Alliance, Universal Insurance, More Vulnerable to Covid-19 Tsunami

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AIICO insurance Plc and its peer rivals will be hard hit by the ultra-low yield environment and the coronavirus pandemic expected to deal a great blow on earnings.

For one thing, declining yields on treasury instruments due to the accommodative monetary policy of the central bank will pressure insurer’s profitability.

Interestingly, insurers often park their money in government bonds when yields are high to help compensate for unfavorable underwriting conditions.

AIICO Insurance Plc posted an underwriting loss of N22.43 billion as at September 2020, but the insurer recorded a 16.58 percent increase in net income, thanks to investment income of N34.39 billion in the period under review.

Africa Alliance Plc posted a loss of N7.14 billion in the period under review, and it posted a loss of N3.22 billion as it counties to struggle with receding sales and rising operating and claims expenses.

The insurer has a negative shareholders’ fund of N13.86 billion and accumulated losses of N40.57 billion, which means it is technically insolvent and susceptible to a possible takeover by entities with strong liquidity position.

“Broader fallouts from the pandemic in terms of lower demand and investment returns, deterioration in the credit quality of fixed income securities and increased mortality rates from the virus could pressure earnings, reserves, and profitability of the life insurance sector in 2020,” said analysts at Afrinvest Securities.

“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.”

The bigger threat to their balance sheets, insurers and analysts say is falling interest rates triggered by the pandemic.

The central bank had cut the monetary policy rate to 11.5 percent from 12.5 percent, while it barred individual and domestic firms from its Open Market Operations (OMO) market.

In short the N62.15 billion investment income realized by the largest companies on the bourse could be wiped out if interest rates remain low for the most part of 2021, or if the central bank clutches to the dovish policy.

“Health Insurers will be impacted by illness, impairment and disability claims, especially from consumers and their dependents affected by the pandemic,” said analysts at PWC.

“The events industry has been significantly susceptible due to cancellations and postponements. This is one insurance segment liable to suffer losses,” said the analysts.

However, insurers have said they are not liable to business interruption claims as a lot of businesses are not covered by for the pandemic.

The largest listed insurers collectively incurred N98.37 billion in claims as at September 2020, which is 31.10 percent increase from 2019’s N75.30 billion, according to data gathered by MoneyCentral.

The economy has been hard hit by the wrought caused by the coronavirus pandemic and the sudden drop in oil price.

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