Insurers have been whipsawed by rising combined ratio, low yield environment, and mounting obligation amid inflationary pressures that sent profit falling for the first time in four years.
The continued deterioration in underwriting results could further stoke investors’ apathy towards sector players’ stock price, already there had been selloff of stocks because market participants were not expecting bumper dividend and share appreciation from an industry that lacks coherent policies needed to attract the desired investment.
For the first nine months through September 2021, the largest listed insurers saw their combined net income dip by 42.28 percent to N15.03 billion from N26.27 billion as at September 20210, according to data gathered by MoneyCentral.
Interestingly, combined profit grew by 11.93 percent to N26.29 billion in the 2020 financial year and it spiked by 27.89 percent to N23.49 billion in the third quarter of 2019, according to data gathered by MoneyCentral.
Coronation Insurance actuarial scientist, Monronfola Monsuru that the macroeconomic uncertainties affect the cost of buying spare parts and that partial loss has been on the increase.
“Claims that used to cost N300,000 is now N500,000, which has significant effects on profitability,’’ said Monrunfola.
He added that margins were squeezed by claims arising from property damaged during the EndSARS protests.
The significant reasons for erosion of profitability are mounting obligations, incessant devaluation of the currency and spiraling underwriting/operating expenses as insurers are paying more in claims than premium that they are earnings.
While headline inflation further moderated by 64 basis points to 15.99 percent for the month of October, it is still below the central bank’s target range of 6-9 percent.
Insurers collectively paid N94.14 billion in claims in the third quarter, and that represents a 30.27 percent increase from 2020’s N72.26 billion.
They incurred N93.18 billion total cost (underwriting plus management expenses), which is 14.71 percent higher than 2020’s N81.23 billion.
Expense ratios are rising because insurers spend a lot to acquire the latest technology and software, hire talented workforce, while the cost of diesel fuel to run generators at head office and branches across the country also swells cost.
Custodian Investment Plc’s net income reduced by 16.90 percent to N5.01 billion in September 2021 from N6.03 billion as at September 2020.
AIICO Insurance Plc, the largest listed insurer by total assets, saw net income fall by 55.10 percent to N2.42 billion in September 2021 from N5.40 billion as at September 2020. However, the insurer’s profit surged 157.51 percent in 2019 financial year
AXA Mansard Plc’s net income reduced by 32.90 percent to N3.80 billion in September 2021, but the company’s bottom line surged 168.74 percent in the 2020 financial year.
Coronation Insurance Plc’s net income reduced by 171.60 percent to N711.12 million as at September 2021 from N992.73 million in September 2020. However, the insurer’s profit spiked 238.65 percent in the 2019 financial year.
Mutual Benefit Assurance posted a loss of N3.46 billion as at September 2021, and that was due to huge fair value loss on asset. The insurer’s net income surged 284 percent in 2019 financial year.
Lasaco Assurance Plc net income fell by 46.80 percent to N458.97 million in September 2021 from N862.54 million the previous year.
However, NEM Insurance, Cornerstone, Sovereign Trust, Prestige Assurance, and Linkage Assurance, bucked the trend as their net income increased by 1,672 percent, 66.10 percent, 12.90 percent, 24.70 percent, and 59 percent.
Indeed, insurers have been hit from left right and center as there has been slow growth in investment income that used to add impetus to the bottom line (profit) as the central bank’s dovish stance sent net yields on treasury crashing like a park of cards.
It is noteworthy that firms pack their money in both short- and long-term government securities and earn a return when yields are high, and that helps make up for slim underwriting income.
However, there is light at the end of the tunnel as earnings could get a boost from the gradual reopening of the economy that is spurring business activities and renewals.
The Nigerian economy grew by 5.01 percent year on year (yoy) in the second quarter (Q2) 2021, according to a latest report by the National Bureau of Statistics (NBS).
The country’s growing population and its position as the largest economy in Africa is a boon for the insurance industry, but there exists low penetration in retail lines.
Interestingly, the low retail lines are caused by low level of awareness and lack of trust m for insurance.