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Tuesday, March 28, 2023

Insurers’ Claims Soar as Inflationary Pressure Bites

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Listed insurers in Africa’s largest economy are facing inflationary pressures due to Naira’s weak performance against the Euro and Dollar making parts and materials significantly more expensive to import.

This in turn had an impact both on motor and property claims.

The cumulative total claims expenses of these firms grew by 30.27 percent to N94.14 billion in September 2021 from N72.26 billion the previous year, according to data gathered by MoneyCentral.

Also, they are paying more in claims expenses to generate premium income as cumulative average claims ratio increased to 43.24 percent in September 2021 from 38.67 percent as at September 2020.

A precipitous drop in crude oil price at the international market for the most part of last year due to the lockdown imposed by the government to curb the spread of the coronavirus significantly undermined the external reserves.

In short, the central bank has been forced to incessantly devalue the currency since 2015 in the aftermath of the mid-2014 oil price crash brought on by the United States Shale oil producers induced supply glut.

The local unit exchanged hands with the foreign currency at N415.10 to a dollar on Friday, data from FMDQ securities exchange windows where forex is officially traded showed.

The currency crisis has been stoking severe scarcity of foreign currency, fueling inflationary pressures that expose insurers to mounting obligations while businesses struggle to import raw materials and machinery needed to meet production.

“Higher inflation may introduce volatility into insurers’ claims costs, although the associated premium growth could offset this,” analysts at AM Best in a recent report in Nigeria’s Insurance Sector.

“A high inflationary environment could affect some insurers more adversely than others. Motor insurers, sensitive to the impact of foreign currency on the costs of imported motor vehicle parts,” said the analysts.

While the headline inflation eased to 16.63 percent in the month of September, it is still below the 6-9 percent central bank’s target range.

For most insurers, claims are a significant part of the expense line, which is pretty much responsible for deteriorating underwriting results as sector players’ combined ratio is above the 100 percent threshold.

The implications of huge real negative underwriting results are that it leaves companies with very slim poor profit margins, and investors are not attractive to the stocks of a firm that pays abysmally poor dividends.

AIICO Insurance, the largest insurer by premium income in Nigeria, saw claims expenses increase by 32.44 percent to N30.16 billion as at September 2021.

The insurers’ claims ratio increased to 70.22 percent in the period under review from 58.76 percent the previous year.

AIICO Insurance incurred N29 billion in claims to Life Insurance Contracts, which is 42.36 percent higher than 2020’s N20.37 billion.

AXA Mansard’s claims expenses were up 26.27 percent to N17.64 billon in September 2021 from N13.97 billion the previous year. Claims ratio rose to 65.04 percent in the period under review from 58.84 percent the previous year.

It paid out N11.65 billion in claims relating to the HMO units, and it is expected that the segment will continue to see mounting obligations.

Coronation Insurance’s claims expenses spiked by 70.76 percent to N4.24 billion in September 2021 from N2.48 billion the previous year. Claims ratio rose to 64.01 percent in the period under review from 44.81 percent the previous year.

A further analysis of the obligations by Coronation Insurance shows claims to Motor segment surged (124.12 percent), while it incurred N1.38 billion in the Life Business.

NEM Insurance’s claims expenses were up 40.84 percent to N6.25 billion as at September 2021. Claims ratio moved to 40.84 percent in the period under review from 24.94 percent the previous year.

A segment analysis shows claims relating to Motor Business stood at N3.12 billion, which is 22.35 percent higher than 2020’s N2.55 billion. Claims in the General Accident amounted to N896.50 million, which is 369.69 percent higher than 2020’s N190.87 million.

Lasaco Assurance Plc claims expenses were up 58.75 percent to N3.27 billion as at September 2021 from N2.06 billion as at September 2020.  Claims ratio increased to 48.35 percent in the period under review from 42.77 percent the previous year.

Linkage Assurance’s claims expenses surged by 181.57 percent to N2.63 billion in the period under review from N936.67 million the previous year. Claims ratio rose to 65.80 percent in September 2021 from 30.90 percent the previous year.

Analysts say companies may mull passing on skyrocketing cost of coverage to customers in the form of higher premium in the January renewals.

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