The average combined ratio of 15 top insurers in Africa’s largest economy stood at 104.47 percent in the third quarter of 2022, MoneyCentral calculations.
The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
If the combined ratio exceeds 100%, it means an insurer is making a loss in its core underwriting business, the total sum of money paid out in claims plus the amount spent as business expenses is greater than the total amount received in premiums.
It is interesting to note that the figure is an improvement from 2021’s 113.39 percent as operators are reeling from claims inflation and a challenging environment.
With inflation rate accelerating for a ninth straight month to 21.09 percent in the month of October 22, the cost-of-living crisis has deepened, and insurers are not impervious from it.
Rising inflation means cost of repairs and labour for motor vehicle gas risen while building and repairs cost soars, which increases total loss settlement costs.
Another elephant in the room is volatility in the foreign exchange market, which also balloons the replacement cost of assets.
The largest insurers collectively paid N104.27 billion to policyholders in the third quarter, which is 12.94 percent higher than 2021’s N92.32 billion, according to data gathered by MoneyCentral.
Insurers are spending money on the acquisition of latest technology and talented workforce and rising diesel prices exacerbated by geopolitical tensions are taking its toll on overhead costs.
Analysts say companies should embark on cost control measures capable of bolstering profit and reducing the combined ratio so that shareholders get a higher return by way of improved dividends.
Insurers incurred N100.05 billion in total operating expenses (including underwriting and management expenses).
Some firms are able to earn more in premium than the claims that they pay as their combined ratio is lower than the 100 percent threshold.
Custodian investment has a combined ratio of (78.74 percent); AIICO Insurance, (94.83 percent); Mutual Benefit, (90.71 percent); NEM Insurance, (88.79 percent); Cornerstone, (57.21 percent); Regency Assurance, 83.81 percent, and Universal Insurance, 96.97 percent.
The outliers are: AXA Mansard, 103.57 percent; Coronation Insurance 109.27 percent; Cornerstone, 109.62 percent; Lasaco, 120.19 percent; Consolidated Hallmark, 117.25 percent; Sovereign Trust, 102.11 percent; Prestige Insurance, 118.38 percent; Linkage Assurance, 160.88 percent, and Guinea Insurance, 144.63 percent.