Niger Insurance Plc recurring losses caused by rising claims expenses has validated the strategic decision by management and board of directors to sell off a property in order to bolster the balance sheet and meet the recapitalization deadline.
The Nigerian insurer has incurred negative retained earnings of N7.79 billion as at December 2020, which means it has been recording more losses than profit throughout its existence and the combined ratio has broken the scale.
It posted a loss after tax of N1.18 billion to end the 2020 financial year, from a loss position of N1.65 billion the previous year.
Unlike the big insurers that are liquid enough to invest in government securities to generate investment income that help compensate for deteriorating underwriting conditions, Niger Insurance’s illiquidity makes it pretty much easier for huge underwriting and claims expenses to wipe out premium income.
For instance, total claims expenses of N1.56 billion as at December 2020 is 1.71 times premium income of N914.93 million, according to MoneyCentral Calculations.
Put simply, claims ratio increased to 171.28 percent in the period under review from 42.41 percent the previous year while total claims expenses surged by 157.45 percent to N1.56 billion as at December 2020.
Niger Insurance is reeling from deteriorating underwriting conditions, and receding sales is eroding profitability. Its Combined ratio stood at 324.20 percent as at December 2020, the highest in the industry. Interestingly, it posted an underwriting loss of N720.27 million.
The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
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.
Many insurance companies believe that the combined ratio is the best way to measure success because it does not include investment income and only includes profit earned through efficient management.
To bolster its balance sheet and cash flow position, Niger Insurance mulled selling off its real estate and investment property valued at N15 billion.
The company said the sale of significant property would give the financial impetus to meet the recapitalization deadline by the regulator.
“Subsequent to the requisite approvals of the board on behalf of shareholders, a number of the company’s real estate and investment property valued at N15bn have been put on sale in order to improve liquidity/cash flows, ensure reserve adequacy and improve solvency margins,” said Edwin Egbiti Managing Director/CEO at Niger Insurance Plc.
“We are encouraged by the progress made so far, and confident that both capital restructuring and recapitalisation efforts will be successful in line with National Insurance Commission’s regulatory timelines,” said Egbitti.
The National Insurance Commission, the body that regulates insurance activities in the country, had hiked the minimum capital requirement for insurers as it seeks to shore up their capital so that they can take on bigger ticket risks.
The changes are as follows: ‘Life Insurance N2 billion to N8 billion, General N3 billion to N10 billion, Composite N5 billion to N18 billion and Reinsurance Nio billion to N20 billion, which was later moved to December 31, 2020.
Niger Insurance has a total equity or shareholders’ fund of N2.13 billion as at December 2020, which is 44.24 percent lower than 2019’s N3.38 billion.
The company’s below average performance should be spooking shareholders and investors as huge expenses are increasingly eroding capital, raising concerns about its ability to meet its long-term financial obligations.
Disappointingly, the outlook for the insurance industry remains bleak or dreary, no thanks to the deteriorating fixed income environment on the back of central bank’s dovish stance and coronavirus pandemic related headwinds that has disrupted the demand and supply side of the market.