NEM Insurance Plc is receiving premium income more than it is paying out as claims, as the insurer has been recording underwriting profit in the last five years amid business lull.
For instance, NEM Insurers’ combined ratios improved to 86.57 percent as at June 2020 from 100.96 percent the previous year, according to MoneyCentral calculations.
That translates to a real underwriting result of N954.15 million as at June 2020, while underwriting profit stood at N2.84 billion in the period under review.
The real underwriting result is derived by deducting 1 from combined ratio and multiplying the outcome by net premium income.
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. Even if the combined ratio is above 100 percent, a company can potentially still be profitable because the ratio does not include investment income.
NEM Insurance’s efficient underwriting capacity was buoyed by reduction in underwriting expense and claims ratios, but revenues (top line) are pressured by a myriad of challenges undermining the growth of the industry.
Net premium income reduced by 7.94 percent to N7.34 billion as at June 2020 from N7.97 billion the previous year.
Analysts expect job loss and event cancellations due to lockdown policies imposed to curb the spread of the virus to bring more pains to insurers who are already grappling with a harsh and unpredictable macroeconomic environment.
Unemployment Rate in Nigeria averaged reached an all-time high of 27.10 percent in the second quarter of 2020.
With over 60 percent living on less than 1.98 a day, taking a cover is the least of problems of Nigerians, which is why the country lags most Sub Saharan peers in premium penetration.
The country’s penetration stood at 0.5% compared with South Africa (12.9%), Kenya (2.8%), Angola (0.8%) and Egypt (0.6%) while density at $6.2 also remains weak compared to South Africa ($762.5), Kenya ($40.5), Angola ($30.5) and Egypt ($22.8).
The low yield environment could pressure future profits for Insurers as investment income could be shrinking.
Insurers parked their money in short term government securities when yields were high, but stringent rules by the central banks sent yields crashing.