Mounting obligations stirred up by the ENDSARs protests that led to the disruption of properties combined with inflationary pressures and currency devaluation have cast shadow over the profitability outlook of Nigerian insurers.
There are indications that insurers are paying more in claims for every premium collected as industry average loss ratio otherwise known as claims ratio increased by 7.26 basis point to 42.07 percent in June 2021, according to MoneyCentral calculation
That compares with a reduction of 2.45 basis point in 2020; reduction of 0.041 basis point, in 2019; an increase of 0.0.14 points, in 2018, and an uptick of 0.051 points in 2017.
Loss ratio is the losses an insurer incurs due to paid claims as a percentage of premiums earned. A high loss ratio can be an indicator of financial distress, especially for a property or casualty insurance company.
In the past five years, the most liquid and well capitalized companies collectively incurred N237.56 billion in claims, according to data gathered by MoneyCentral.
There are concerns that claims related to endSARS unrest or bedlam, and the difficult business environment, will likely put pressure on operating performance of insurers in the second half of 2021.
Also, companies’ underwriting results tend to be weakened in the period under review as unfavorable underwriting conditions continue to undermine return on equity.
Insurance firms have paid over N5.40 billion in claims settlement arising from ENDSARs losses, according to Nigeria Insurers Association (NIA).
In October 2020, disgruntled youths had poured on the streets in several cities of the country, demanding an end to police brutality perpetuated by the special police squad – the Special Anti-Robbery Squad.
As the security operatives handled the crisis with kid gloves , hoodlums hijacked the protest and looted and vandalised properties across major cities in the country.
“As an umbrella body, we would summarize what we are doing in terms of insurance claims payment,” said Yetunde Ilori Director-General,
“The principle of insurance is so many people contributing money together to settle the unfortunate ones. Takaful is a model of that particular principle. Other insurance companies also provide non-claim discounts to those who have not collected their claims,’’ said Illori.
The largest insurers saw combined claims expenses spike by 44.97 percent to N56.0 billion in June 2021 from N38.63 billion as at June 2020.
That compares with an increase of 16.72 percent in 2020; an uptick of 19.11 percent, in 2019; +26.12 percent, 2018, and +21.79 percent in 2017.
Analysts also attribute mounting obligations to fraud as some policyholders duplicate claims. They added the harsh operating environment is also fueling these practices as a lot of people are desperately in need of money to take care of themselves.
Inflationary pressures and incessant devaluation of the currency means the replacement costs of assets will go up and that balloons claims expenses because most assets were insured at a prevailing exchange rate at the time.
A breakdown of the figures shows AIICO Insurance’s claims ratio moved to 72.15 percent in June 2021 from 56.15 percent the previous year. This means that the insurer paid out N72.15 for every N29.17 it collected in net premium income.
The largest listed insurer by total assets saw claims expenses rise by 44.84 percent to N20.36 billion in June 2021 from N14.45 billion the previous year.
Linkage Assurance Plc claims ratio increased to 79.12 percent in June 2021 from 26.12 percent as at June 2020. This means it paid out N1.83 billion out of N2.39 billion premium income realized. Net premium income surged by 252.71 percent to N1.88 billion as at June 2021.
Coronation Insurance’s loss ratio increased to 63.14 percent in the period under review from 40.12 percent the previous year. It paid N2.89 billion in claims out of N4.611 billion generated in net premium income.
AXA Mansard’s loss ratio rose to 38.15 percent in the period under review from 29.12 percent the previous year; net premium income was up 42.92 percent to N6.54 billion as at June 2021.
Lasaco Assurance’s claims ratio rose to 42.28 percent in June 2021 from 24.21 percent the previous year. Its net premium income surged by 145.41 percent to N1.60 billion as at June 2021.
NEM Insurance’s loss ratio increased to 36.12 percent in the period under review from 27.15 percent the previous year; net premium income surged by 95.18 percent to N3.88 billion as at June 2021.
Prestige Assurance’s claims ratio moved to 43.15 percent in the period under review from 29.12 percent the previous year; net premium income spiked by 100.78 percent to N1.10 billion as at June 2021 from N548.94 million the previous year.
The Insurance regulator NAICOM is taking stringent measures on companies who have not been meeting obligations to policyholders, and some have been punished for not honoring such fundamental obligations.
Following complaints lodged to it by customers across the country, NIA had expelled Industrial and General Insurance Company Limited (IGI), Niger Insurance Plc and Standard Alliance.
The majority of insurers are reeling from deteriorating underwriting performance as expenses are rising faster than revenue growth.
With the yield environment undermining investment income, returns to shareholders will be abysmal. That means valuation of companies will remain poor as they do not have strong earnings that will pave the way for them to declare bumper dividends to shareholders.