Mutual Benefit Assurance Plc’s profit has hit a five high on juicy yield on fixed income securities even as obligations to policyholders continue to mount amid the difficult operating environment and Covid-19 crisis.
For the year ended December 2020, Mutual Benefit Assurance’s net income surged by 25.76 percent to N4.54 billion, that compares with N3.61 billion in 2019.
The profit has been growing steadily since 2017 after the insurer recorded a loss in 2016, a period concomitant with the recession brought upon by sudden drop in crude oil price of mid-2104 that stoked a severe dollar scarcity and depleted the external reserve.
A cursory examination of the financial statement of the insurers shows it realized sizable income from short term government securities that helped compensate for unfavorable underwriting conditions.
Investment income hit N5.35 billion as at December 2020, higher than 2019’s N3.45 billion, according to data gathered by MoneyCentral.
However, there are indications that the windfall from fixed income securities will wither away as net treasury yields have crashed to an unprecedented level on the back of the accommodative policy of the central bank.
Mutual Benefit is exposed to mounting obligations to policy holders as claims expenses spiked by 32.26 percent to N7.83 billion in the period under review against N5.92 billion the previous year. Claims ratio increased to 48.90 percent in December 2020 from 38.74 billion the previous year.
That resulted in a combined ratio of 114.79 percent in the period under review from 105.88 percent the previous year as the insurer recorded negative real underwriting results of N2.38 billion.
The real underwriting results are arrived at by deducting 1 from the combined ratio and multiplying by net premium income. The measure is favored by analysts because it includes management expenses in its calculations.
The insurer’s innovative product is alluring to customers and helping boost the top lines (revenue).
Net premium income was up slightly by 4.47 percent to N16.01 billion as at December 2020 from N15.28
In a bid to shore up its capital and ward off the impact of the coronavirus headwinds, mutual benefit assurance secured the approval of its shareholders to raise N4.8 billion through the sale of 8,888,888,889 ordinary shares of 50 kobo each at 54 kobo per share, subject to regulatory approvals.
It said it was embarking on a private placement to raise additional N4.8bn from its existing investors who had shown interest to increase their stake.
Among the shareholders that indicated interest to take up the private placements included Charles Enterprises and Arubiewe Farms Limited.
The Chairman, Mutual Benefits Assurance, Akin Ogunbiyi, said given the impact of the COVID-19 pandemic on the world economies and the negative investors’ sentiments in the stock market, the company decided to raise the additional capital required.
He said this was by way of private placement of its shares to some existing substantial investors who had indicated their readiness to commit further investment into the company to meet the new minimum regulatory capital.
The Managing Director/Chief Executive Officer, Mutual Benefits Assurance, Femi Asenuga, said there were plans to focus on the business and increase shareholder value with payment of dividends in 2021.