The capacity of Nigeria Insurers to underwrite new policies is decreasing because while premiums are increasing there is not a corresponding rise in policy surplus or shareholders’ funds.
Interestingly, the premium to surplus ratio for most Nigeria Insurers is high, which significantly undermines their ability to undertake big ticket transactions.
Premium to surplus ratio is net premiums written divided by policyholder surplus.
Insurers collectively grew gross premium income (GPI) by 11.40 percent to N358,53 billion in December 2021 from N321.82 billion as at December 2020, according to data compiled by MoneyCentral.
However, Nigeria Insurers saw their combined policyholder surplus or shareholders’ fund decrease 0.498 percent to N303.51 billion as at December 2021, according to data gathered by MoneyCentral.
The greater the policyholder surplus, the greater assets are compared to liabilities. In insurance parlance, liabilities are the benefits that the insurer owes its policyholders.
The insurer can increase the gap between assets and liabilities by effectively managing the risks associated with underwriting new policies, by reducing losses from claims, and by investing its premiums to achieve a return while maintaining liquidity.
It is important to note that premiums are the lifeblood of an insurance company because the more they are paid the more sustainable a company.
Royal Exchange’s premium to surplus ratio rose to 442 percent in December 2021 from 200 percent the previous year. The insurer’s shareholders’ fund dipped 92 percent to N603.13 million due to accumulated losses as zero income on Life Business continues to undermine premium income.
AXA Mansard’s gross premium income rose by 18.31 percent, but shareholders’ funds fell by 10.13 percent.
Mutual Benefit Assurance’s gross premium income was up 21.59 percent to N24.77 billion as at December 2021, however, policyholders’ surplus dipped by 15.57 percent to N23.35 billion.
Linkage Assurance’s gross premium income spiked by 24.74 percent but its shareholders’ fund reduced by 11.48 percent.
AIICO Insurance’s gross premium income was up 14.07 percent, however, the shareholders’ fund rose by 9.12 percent.
African Alliance and Niger Insurance are technically insolvent as they have negative shareholders funds of N1.01 billion and N6.02 billion respectively.
Analysts say most insurers do not have enough strong capital to undertake Aviation, Marine, and Oil and Gas risk needed to magnify their earnings.
Allen Onyema, chairman Air Peace, said all the insurance companies in Nigeria put together cannot even insure one aircraft
He added that his company goes abroad to insure aircrafts because firms are unable to underwrite such risks.
“You have not talked about insurance that is very static. Nigerians pay heavy insurance premiums because this country is stigmatized. You have to insure in Lloyd’s of London and other places abroad. It is a must because all the insurance companies in Nigeria put together cannot even insure one aircraft. So, you have to go abroad to insure, and they slam us with heavy premiums,” said Onyema.
The regulator had mandated all insurers to shore up their capital or have their licenses revoked, but the deadline for the recapitalization has been postponed to allow firms recover from the coronavirus pandemic.