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Regency Alliance Records Improved Underwriting Results Despite Headwinds

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Despite persistent macroeconomic headwinds undermining the growth of the industry, Regency Alliance Plc recorded an improvement in results, thanks to a reduction in loss ratio.

Also, efficient underwriting capacity was due to premium growth, reduction in underwriting expenses ratio, and increase in claims expenses recovered from reinsurance.

However, a low investment return resulted in slow growth at the bottom line (profit) as low yield environment has a cast a pall on future profitability.

For the first three months through March 2020, Regency Alliance’s underwriting profit increased by 19.80 percent to N753.52 million from N628.94 million the previous year.

Net income rose by mere 2.25 percent to N218.53 million as at March 2020, while net profit margin fell to 16.14 percent in the period under review as against 18.39 percent as at March 2019.

But Regency Alliance is profitable and efficient from real underwriting results point of view as combined ratio improved to 82.84 percent in March 2020 as against 95.87 percent as at March 2019.

The combined ratio is a measure of insurer profitability, calculated simply by taking the sum of claim-related losses and general business costs and then dividing that sum by the earned premiums over the period.

A ratio below 100 percent indicates an insurer earns more in premium income than it pays out in claims related cost and expenses.

Regency Alliance has spent less on claims expenses in generating premium income as claims expense ratio fell to 28.51 percent in the period under review as against 30.29 percent the previous year.

Despite the high cost of doing business in Nigeria, total expenses ratio (underwriting and management expenses) reduced to 54.33 percent as at March 2020 as against 65.58 percent as at March 2019.

What this means is that the company spent less in running operations across the country to generate revenue.Gross premium income increased by 14.39 percent to N1.86 billion as at March 2020, thanks to contributions from cash cow segment that added strength to earnings.

A breakdown of premium income figure shows premium from oil and gas business moved by 65.57 percent to N362.68 million as at March 2020 as against N218.72 million the previous year.

However, the company’s investment returns dipped to 9.70 percent as in March 2020 as against 12.44 percent as at March 2019; while investment income dip by 9.19 pin percent to N131.19 million as at March 2020.

Protracted market pressure caused by regulators’ recent stringent policies have sent yields crashing, hence insurers’ investment income could shrink as they are no longer making money from short term government securities.

Central Bank of Nigeria (CBN) sells high yielding- short term debt to financial institutions so as to protect the Naira and shore up the external reserves.

Then financial institutions sell at a high interest rate to investors, an act that is called arbitrage. But the central bank has put such trade to an end as it banned individual and local corporates from Open Market Operations (OMO) a view to forcing banks to lend to the economy.

Shareholders of Regency Alliance Insurance had last year refused to approve the 3 kobo per share dividend proposed by the board of directors of the company for the year ended December 31, 2018.

This decision to reject the cash dividend proposed by the board for the financial year was taken by the shareholders at the company’s Annual General Meeting held in Lagos.
They resolved that the total sum, which would have been paid in dividend, should be ploughed back into the company’s general reserve.

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