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Thursday, March 30, 2023

NEM Insurance’s Combined Ratio Strengthens in Q1 as Net Premiums Rise

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NEM Insurance has reported an improvement in its combined ratio to 88.01 percent for the first quarter of 2022, as net premiums increased to almost N12 billion in the period.

The insurer’s combined ratio strengthened by 4 percentage points from the 92.22 percent reported in Q1 2021, driven by low expense ratio even amid a tough and unpredictable macroeconomic environment.

An improved underwriting condition indicates the insurer earns more premium than claims it pays, which is why it has been consistently growing underwriting income.

Underwriting profit was up 50.55 percent in March 2022 from N1.80 billion as at March 2021.

The 26.92 percent year-on-year rise in earned premiums reflects continued growth in gross premium volume from new business and more favourable rates.

Net premium income increased by 30.25 percent to N9.17 billion in March 2022 from N7.04 billion as at March 2021.

NEM’s first quarter results reflect continued progress against its underwriting initiatives as the impressive performance further demonstrates the effects of its ongoing focus on underwriting and expense discipline.

The insurer paid N3.36 billion in the first quarter of 2022, and that is 33.33 percent higher than 2021’s N2.52 billion. Claims ratio increased to 36.65 percent in the period under review from 35.87 percent the previous year. This means the firm is spending more on claims to generate revenue.

Of course, insurers in Africa’s largest economy have seen mounting obligations due to inflationary pressure and currency volatility which balloons the replacement cost of assets.

According to a recent report by the National Bureau of Statistics (NBS), the headline inflation climbed 22bps to settle at 15.9 percent year on year (y/y) in Mar-2022, from February’s 15.7 percent, printing in line with our forecast of 15.9 percent.

NEM’s expense ratio reduced to 51.36 percent in the period under preview from 56.36 percent the previous year.

With a double digit growth in revenue and cost containment measures put in place by management and board of directors, little wonder net income spiked by 41.28 percent to N1.54 billion as at March 2022.

Despite the gradual improvement in the fixed income market, investment income fell by 32 percent to N196.70 million as at March 2022.

The 12-month treasury yield now stands at 4.85 percent, and that compares with 1 percent and 3 percent in the fourth quarter of 2020 and first quarter of 2021.

Interestingly, yields hovered between 18-22 percent in 2017 as the central bank has been dovish in recent times due to macroeconomic uncertainties.

Nigeria 10-year bond yield was 11.48 percent on Friday April 22, according to over-the-counter interbank yield quotes for this government bond maturity.

Insurers rely on juicy yields to underpin profit to make up for deteriorating underwriting conditions in a high claims environment.

NEM has total equity of N24.42 billion, while N10.78 billion retained earnings means it can fund dividend payment.

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