Linkage Assurance Plc can meet its long-term liabilities and settle claims even if an unforeseen event occurs as the insurer is reeling from fair value loss on bond investment.
This is because the insurer’s solvency ratio of 295 percent as at June 2021- though lower than 2020’s 376 percent- crosses the regulatory threshold.
For instance, the company’s solvency margin of N5.83 billion exceeds regulatory minimum capital base of N3 billion. The solvency margin is the excess of admissible assets over admissible liabilities.
It is important to note that the regulators are all out to ensure that companies have strong capital bases that will enable surmount macroeconomic headwinds.
According to China’s regulatory regime, insurance firms are required to maintain solvency ratios above 100 percent, or be subject to penalties on the scope of their business and financing activities.
Insurers were stumped up by the coronavirus pandemic that exposed them to huge claims that threatened earnings, hence there were concerns by regulators about capital positions of entities.
In Mid-March 2020, Italy’s insurance watchdog IVASS started monitoring solvency and liquidity ratios of the country’s insurers  after the pandemic and an ensuing rout on financial markets had hurt the industry.
Declining yields on treasury instruments due to the accommodative monetary policy of global systemically important central banks pressured life insurance profitability.
Also, the 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 undermined earnings.
In Nigeria, future profit of insurers could be pressured following the dovish stance of the central bank that saw net treasury yields crash- the regulator had barred non-corporate individuals from its Open Market Operation.
The National Insurance Commission (NAICOM), the body that regulates insurance activities in the country- has taken drastic steps to ensure that operator in the industry are well capitalized and liquid.
NAICOM released a circular dated 3 June 2020(NAICOM/DPR/CIR/25-04/2020) to all insurance and reinsurance companies in Nigeria. The circular indicated the difficulty to proceed with the 31 December 2020 recapitalization deadline due to the incidences of COVID-19 pandemic.
The Commission extended and segmented the recapitalization process into two phases; general insurance business is required to meet 50 percent of the minimum capital requirement of N10bn by 31 December 2020 and have full compliance of the remaining balance by 30 September 2021. However, as at year end, The National House of Assembly suspended the directive of NAICOM as a relief due to the ongoing COVID-19 pandemic.
Linkage Assurance is reeling from rising claims expenses and fair value loss on financial assets that resulted in a loss after tax of N2.09 billion, and to exacerbate the already amenic position of the insurer is a reduction in investment income caused by a low yield environment.
Its combined ratio deteriorated to 198.98 percent in June 2021 from 126.19 percent the previous year. The lowest ratio of 86.15 percent was recorded in 2016, which marked a period of and benign underwriting performance.
The combined ratio is a measure of efficiency and profitability that aggregate all expenses as a percent of revenue. A ratio lower than 100 indicates the firm is profitable.