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Monday, March 27, 2023

Mutual Benefit Assurance Squeezed by N4.71bn Fair Value Loss on Assets

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Mutual Benefit Assurance Plc posted a huge net loss to start the year even as it maintained operating efficiency, no thanks to net fair value loss on assets.

For the first three months through March 2021, Mutual Benefit Assurance posted a loss after tax of N1.94 billion from a profit of N931.79 million the previous year.

The loss was largely driven by N4.61 net fair value loss on assets, which is a 950.12 percent surge from 2019’s N449.78 million.

The good tidings are that such transactions are one off events and do not recur at all times.

Fair value refers to the actual value of an asset – a product, stock, or security – that is agreed upon by both the seller and the buyer. Fair value is applicable to a product that is sold or traded in the market where it belongs or under normal conditions – and not to one that is being liquidated.

Mutual Benefit Assurance is profitable from the underwriting point of view, which many analysts and investors are more concerned about. Investors see a company that generates more revenue than it spends on expense as being financially stable and resilient.

Interestingly, the insurer’s combined ratio improved to 71.10 percent in March 2021 from 86.81 percent the previous year, according to MoneyCentral calculations.

The combined ratio measures the money flowing out of an insurance company in the form of dividends, expenses, and losses. Losses indicate the insurer’s discipline in underwriting policies.

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.

Mutual Benefit posted N3.16 billion in underwriting profit in 2021,which is 23.92 percent higher than 2020’s N2.55 billion.

In 2020, the company secured the approval of shareholders to raise N4.80 billion by way of private placement to help mitigate the effect of the coronavirus pandemic and shore up capital in readiness for the recapitalization deadline by the regulator.

The coronavirus pandemic that tipped the country into its second recession in 5 years in 2020 slowed the pace of growth for the insurance industry, adding to another layer of myriad of challenges bedeviling an industry with one of the lowest penetrations in sub-Saharan-Africa.

Insurers hammered by the pandemic are turning to capital raisings to underpin their balance sheet as they race to see who will emerge strongest when the outbreak subsides.

In the last two years, the biggest insurers in Africa’s largest economy have approached their shareholders with plans to raise a combined N28.15 billion by way of rights issue, according to data gathered by MoneyCentral.

Further analysis of Mutual Benefit’s financial statement shows gross premium income increased by 37.76 percent to N7.04 billion in March 2021 from N5.11 billion the previous year.

Net premium income was up 27.09 percent to N5.45 billion in March 2021 as against N4.28 billion the previous year.

The insurer paid N1.35 billion claims in 2020, which is 70.69 percent higher than 2020’s N791.85 million the previous year.

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