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Tuesday, September 26, 2023

Listed Insurers Record Premium Growth Despite Covid-19 Headwinds

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Nigerian listed insurers have continued to expand their underwriting portfolios even amid the coronavirus crisis and a difficult business environment as premium growth accelerated in the third quarter (Q3) of 2020.

For the first nine months through September 2020, the largest insurers quoted on the Nigerian bourse collectively realized N238.51 billion in gross premium income, which is a 20.93 percent increase from 2019’s N197.22 billion.

Growth was supported by the improvement in both life and non-life insurance segments, but underwriting losses due to mounting obligations have prevented impressive top line (revenue) performance from translating into double digit growth in profit.

A breakdown of the figure shows AIICO Insurance, the largest quoted insurer by asset, saw gross premium income spike by 24.15 percent to N44.13 billion as at September 2020, according to data compiled by MoneyCentral.

AIICO’s Life and Individual Group segment jumped 39.69 percent to N30.20 billion as at September 2020 from N21.62 billion the previous year.

The non-life segment was up 11.75 percent to N10.04 billion in the period under review from N10.04 billion the previous year.

AXA Mansard Insurance’s premium income was up 12.12 percent to N34.18 billion as at September 2020. The growth was largely driven by an uptick (22.44 percent) in AXA Mansard Health Insurance (HMO).

Mutual Benefit Assurance’s gross premium income increased by 12.95 percent to N14.02 billion as at September 2020 as against N12.02 billion the previous year.

Linkage Assurance’s gross premium income was up 26.13 percent to N5.80 billion as at September 2020 from N4.60 billion the previous year.

While the listed insurers are seeing revenue growth, a myriad of challenges have resulted in deteriorating underwriting performance, as the industry is lagging in major indicators- penetration and density.

This poor level of growth is largely due to little awareness and understanding of insurance products, lack of trust especially with regards to claim settlement, socio-cultural and religious beliefs of Nigerians, weak enforcement of compulsory insurance policies and the slow pace of innovation amongst industry participants.

In addition, the weak macroeconomic environment affects insurance adoption given weak economic growth and high unemployment and poverty rates.

The sector penetration stood at 0.5 percent compared with South Africa (12.9 percent), Kenya (2.8 percent), Angola (0.8 percent) and Egypt (0.6 percent) while density at $6.2 also remains weak compared to South Africa ($762.5), Kenya ($40.5), Angola ($30.5) and Egypt ($22.8).

Another big elephant in the room for insurers is the coronavirus pandemic that disrupted economic activities across the globe, and tipped Nigeria into its second recession in 5 years.

The coronavirus pandemic, which has brought unprecedented challenges, is expected to result in delay of renewals as businesses are trending downward in most products and markets; and the level of insurance transaction has been slow due to remote working. Customers, who are struggling to get their act together, could delay premiums.

Direct marketing staff and some insurance brokerage firms who rely heavily on physical contact for selling of insurance were also deeply impacted by the pandemic.

In addition, the EndSARs protests that resulted in the disruption of properties will accelerate payout or claims, another whammy for an industry reeling from mounting obligations.

Analysts have warned that the ultra-low yield environment caused by the dovish central bank will undermine investment returns, which means profit will be pressured.

That puts listed insurers in a precarious situation as they may find it difficult to deliver higher returns to shareholders in the form of bumper dividends and share appreciation.

Analysts at Afrinvest Securities Limited in a recent report said the pandemic would have a negative impact on major insurance policies including business disruptions policies, health insurance, and events insurance as many functions and gatherings get postponed.

“The impact would also be felt in travel insurance due to restrictions in movement especially for customers with additional covers against travel disruptions and in credit insurance as default rates rise,” said the analysts.

“Also, premium income would potentially reduce as businesses close down and the profitability of insurers could decline due to fall in yields on fixed income instruments which constitute the bulk of insurer assets,” said the analysts.

Analysts at PWC are of the view that the low yield environment and gathering economic storm raises the possibility of regulators asking for extraordinary solvency tests to ensure insurers can withstand the immediate and knock-on impacts.

“Put together, this daunting list of issues represents a stern test of resilience for an industry already weighed down by enduringly low interest rates and slow growth in mature markets,” said analysts at PWC.

The National Insurance Commission (NAICO) had hiked the minimum capital requirement for insurers as it seeks to deepen penetration and ensure that operators take on more big ticket risk.

The revised paid-up capital requires life Insurance business operators to raise its capital from N2 billion to N8 billion; General business from N3 billion to N10 billion, while that of Composite business has been jerked up from N5 billion to N18 billion.

For Reinsurance business, the revised minimum paid-up share capital has also been reviewed upward from N10 billion to N20 billion.

There has been a slew of capital raisings as insurers are shoring up capital to meet the recapitalization deadline, while the rules are expected to spur mergers and acquisition.

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