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Wednesday, March 22, 2023

Niger Insurance Sells Significant Investment to Wipeout N6.19bn Accumulated Losses

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Last week, the board of directors of Niger Insurance announced they were planning to dispose of a significant investment-real estate and investment property- for N15 billion.

The underwriter said it would use the proceeds of the sale to boost cash flow and working capital necessary to meet the minimum capital requirement set by the regulator.

MoneyCentral took a cursory look at the financial position of Nigeria Insurance to ascertain whether the N15 billion is a drop of water in an ocean.

The company has accumulated losses or negative retained earnings of N6.19 billion as at September 2020, which means it has been recording more losses than profit through its existence.

Deteriorating macroeconomic conditions and lack of diversified product base means revenue will continue to nose dive, while spiraling claims and management expenses are a recipe for unfavorable underwriting conditions.

Net premium income has fallen since 2016, and it dipped by 43.22 percent to N697.26 million, while gross premium income and gross premium income followed the same downward trajectory as they reduced by 46.17 percent and 48.25 percent, respectively.

The company is paying out more in claims than it is earnings in revenue, raising concerns that huge costs will continue to erode profitability.

A cursory look at the financial statement shows management expenses of N1.01 billion are 1.43 times net premium income, while claims expenses of N935.68 million are 1.34 times of N687.24 million, little wonder combined ratio for the third quarter stood at  277.12 percent, way higher than the 100 percent threshold.

A deteriorating underwriting performance means a net loss of N613.86 million, and the company has to embark on restructuring even if it meets the recapitalization deadline.

The protracted unimpressive results and weak balance sheet exposes Niger Insurance to takeover by a bigger firm, but the intended sale of a significant investment could add impetus to cash flow.

Nigeria increased the minimum capital requirement for insurers more than threefold as the industry regulator seeks to improve the sector’s risk management.

Insurers wanting to combine life and property and casualty businesses are required to have capital of at least 18 billion naira ($50 million), up from 5 billion naira, while the minimum for property and casualty business is 10 billion naira compared with 3 billion naira. The requirement for life insurance is 8 billion naira versus 2 billion naira and that for reinsurance is 20 billion naira compared with 10 billion naira.

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