The coronavirus pandemic took a devastating toll on the global economy, and Nigeria was not spared the pang of a virus that killed millions of people across the world and tipped the country into its second recession in 5 years.
Notably, the insurance industry was one of the hardest hit sectors from the crisis, as the pandemic stoked increased mortality rates that pressured earnings in the life segment, while the lockdown policy imposed by the government undermined demand, which hindered people from taking a cover.
Of course, health Insurers were impacted by illness, impairment and disability claims, especially from consumers and their dependents affected by the pandemic.
The event industry was exposed to obligations related to event cancellations, while the travel insurance capitulated to claims related to customers who had indemnified themselves to additional insurance cover for their travels.
Little wonder analysts at PWC in a recent report are of the view that there is possibility of regulators asking for extraordinary solvency tests to ensure companies can withstand the immediate and knock-on impacts.
Pressure on sales from reduced business activities brought on by the pandemic is a double whammy for Nigerian insurers who had been grappling with difficult business environments and protracted economic downturn.
For instance, deteriorating consumer disposable income caused by spiraling inflation and high unemployment means taking a cover is the least of the problems for the people as over 50 percent of a population of 200 million live on less than $1.98 a day.
It is not surprising that growth remains abysmally low with the sector lagging peers in penetration and density, and the industry contributes less than 1 percent to the economy.
But in developed countries, insurance is one of the major drivers of GDP growth.
Analysts have also attributed the poor level of growth to little awareness and understanding of insurance products, lack of trust especially with regards to claim settlement, socio-cultural and religious beliefs of Nigerians, weak enforcement of compulsory insurance policies and the slow pace of innovation amongst industry participants.
It is noteworthy that premium incomes have not been growing at a fast pace required to absorb huge underwriting and claims expenses needed to deliver robust underwriting income.
Despite these myriad of challenges, Leadway Assurance Limited, the largest insurer by total asset, has delivered a stellar performance as it remains one of the most profitable insurers in the country.
The 2020 financial statement of Leadway Assurance shows its net income spiked by 21.65 percent to N11.18 billion, from N9.63 billion as at December 2019.
Interestingly, the growth at the bottom line was largely driven by an uptick in income from investment securities.
Investment income and fair value of assets surged by 83.07 percent to N120.19 billion as at December 2020, from N65.65 billion the previous year.
However, Nigerian insurers may see investment income under pressure this year due to the dovish stance of the central bank that led to declining yields on treasury instruments or fixed income securities.
Interestingly, operators in the industry awash with liquidity park their money in both short- and long-term bonds when yields are benign to help compensate for an unfavorable underwriting environment.
In October 2019, the central bank prohibited individuals and local corporates from its open market operations (OMO) market, which sent net treasury yields crashing.
However, the recently gradual rally in the bond market, if sustained, offers a glimmer of hope that investment income will not be squeezed.
Leadway Assurance is honoring obligations to policyholders as it paid total claims of N43.55 billion in December 2020, which is 13.17 percent higher than 2019’s N38.48 billion.
Despite the inflationary pressure and volatile currency, the company’s total operating expenses were down 3.09 percent to N16.59 billion in December 2020 from N17.12 billion as at December 2019.
Leadway Assurance is using its capacity to write more policies, a sign of financial strength as its gross premium to policy ratio stood at 80.96 percent, according to MoneyCentral calculations.
Premium to surplus ratio is gross premiums written divided by policyholder surplus. Policyholder surplus is the difference between an insurance company’s assets and its liabilities.
The premium to surplus ratio is used to measure the capacity of an insurance company to underwrite new policies.