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Tuesday, March 28, 2023

Custodian Investment’s Favorable Combined Ratio Validates Efficient Underwriting Capacity

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Custodian Investment Plc has earned more in revenue than it has paid out as claims even amid an unfavorable underwriting environment, a stellar performance that validates the insurer’s efficient underwriting capacity.

Custodian Investment has reported a combined ratio of 79.73 percent for the first quarter of 2021 against 86.79 percent for the prior year period, helped in part by N5.23 billion underwriting profit despite the impact of the coronavirus pandemic.

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.

Even if the combined ratio is above 100 percent, a company can potentially still be profitable because the ratio does not include investment income.

Overall, it has announced net premium written growth of 23.0 percent to roughly N21.60 billion, gross premium income spiked by 9.0 percent to N15.13 billion in March 2021 from N13.88 billion the previous year.

Interestingly, net premium income followed the growth trajectory as it was up 6.11 percent to N8.35 billion from N8.35 billion the previous year. Across its operations, the insurer has recorded a real positive underwriting results of N1.79 billion, according to MoneyCentral calculations.

Custodian Investment is spending less on claims to generate revenue as the loss ratio fell to 41.52 percent in the period under review from 50.82 percent the previous year.

Net claims expenses were down 13.32 percent to N3.68 billion in March 2021 from N4.24 billion the previous year.

The company, which acquired 51 percent stake in UACN Property a few years ago to diversify its revenue base, had received the authorization of its shareholders to raise $15 million as additional capital through a conversional loan instrument.

A lot of insurers in Africa’s largest economy are shoring up capital so as to meet the recapitalization deadline of the regulator, but only few firms have the financial strength to raise capital on their own without being absorbed by another entity.

It is expected that the recapitalization scheme will spur mergers and acquisition, a welcome development as there are currently 57 insurers in Nigeria.

Analysts say there are too many underwriters in the country, and they added that they see the industry replicating the banking sector consolidation of 2005 that shrank banks to 25 from about 89.

Custodian Investment seems to be on a safer side as it has a shareholders’ fund of N58.84 billion as at March 2021, which is 2.32 percent higher than 2020’s N57.50 billion.

The insurer saw 28.42 percent reduction in net to N1.32 billion, no thanks to changes in the fair value of financial assets of N18.62 billion.

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