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Cornerstone Insurance Plc has been whipsawed by claims load and rising operating and underwriting expenses which squeezed profit, further validating the negative impact of inflationary pressures on the earnings of insurers.
For the year ended December 2022, Cornerstone Insurance’s net income reduced by 15.01 percent to N3 billion from N3.53 billion as at December 2021.
Net profit margin, a measure of profitability and efficiency, fell to 32.08 percent in the period under review from 40.76 percent the previous year.
The drop at the bottom line (profit) was due to deteriorating underwriting conditions despite an improvement in revenue and uptick in investment income.
For instance, claims expenses spiked by 23.55 percent to N3.20 billion in December 2022 from N2.59 billion the previous year; claims ratio moved to 34.32 percent in the period under review from 29.94 percent the previous year.
Insurers have been reeling from mounting obligations exacerbated by red-hot inflations that ballooned the replacement costs of assets and it is expected that price instability will continue to weigh on earnings.
Nigeria’s inflation rate has risen to 21.91% in February, compared to January 2023 inflation rate which was 21.82%, according to data from the National Bureau of Statistics (NBS).
Of course, it is not surprising that Cornerstone Insurance paid out more in claims than the premium income it collected as the combined ratio improved to 121.25 percent in the period under review from 125.70 percent 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.
Rising inflation which forces the central bank to embark on aggressive monetary tightening is a boon for the insurer who realised N2.37 billion as at December 2022, which is 47.78 percent higher than 2021’s N1.60 billion.
The insurer net premium income increased by 7.90 percent to N9.35 billion in December 2022 from N8.66 billion the previous year.