International Energy Insurance Plc is spending money unnecessary to the extent that it would not be able to attend to claims settlement as the insurer continues to reel from spiraling combined ratio.
For instance, rising management expenses wipes out the gains from the top line (revenue), leaving the insurer with recurring losses.
It must be noted that insurers strike a balance between claims and operating expenses and revenue that they generate in order for them to stay in business.
The insurer posted a loss after tax of N45.19 million in the first six months of 2022, from a loss position of N30.25 million the previous year.
Interestingly, management expenses of N672.33 million in June 2022 is 2.33 times net premium income.
While the combined ratio improved to 297.23 percent in June 2022 from 308.69 percent, according to MoneyCentral.
The combined ratio is typically expressed as a percentage. A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.
Even if the combined ratio is above 100 percent, a company can potentially still be profitable because the ratio does not include investment income.
Total expense ratio fell to 263.58 percent in the period under review from 301.30 percent the previous year.
The company paid N96.15 million in claims to policyholders, which is 471.91 percent higher than 2021’s N16.95 million the previous year.
Claims ratio increased to 33.65 percent in the period under review from 7.32 percent as at June 2021, according to MoneyCentral calculations.
However, International Energy Insurance saw improvements in revenue as it continues to roll out market penetrating products.
Gross premium written (GPW) was up 18.91 percent to N302.32 million in June 2022 from N254.24 million the previous year.
Net premium income followed the same growth trajectory as it rose by 24.34 percent to N288.19 million in the period under review from N231.82 million as at June 2021.
Analysts say the owners of the company should intensify their cost control strategy so that the top line (sales) impressive performance translates to bottom line growth (profit).
Also, they added that there needs to be a widening of revenue base to be able to absorb total costs and deliver a return to shareholders.
The National insurance Commission (NAICOM) said it would regulate the management expenses of insurance companies, and put a limit on the spending of some firms.
NAICOM’s top priorities include: Market development; Capital verification; Management Expenses of Insurance Companies; Statutory Returns; Risk Based Supervision; Information Technology; Competence of Directors Senior Management and Persons in Control Functions; Corporate Governance and Service Delivery.