Royal Exchange Nigeria Plc has capitulated to the harsh operating environment as its losses continue to pile, heightening concerns that the insurer may not be able to pay dividends to shareholders.
The insurer posted a loss of N215.33 million as at December 2019 after a loss of N156.17 million it recorded in 2018.
Royal Exchange has been recording recurring losses over the past few years as it has negative retained earnings of N3.19 billion in the period under review.
If it continues to carry accumulated losses in its books, its shareholders will not be rewarded in form of dividend income as the law only allows companies to make such payment from distributable profit.
It suffered a 66.45 percent drop in underwriting profit to N1.23 billion, validating weak revenue and rising operating cost eroding profitability.
Combined ratio reduced to 103.60 percent in the period under review from 112.60 percent as at March 2019, but these figures are higher than the 100 percent international bench mark.
Claims expenses were flat at N3.15 billion as at December 2019, but loss ratio increased to 38.22 percent in the period under review from 34.37 percent the previous year.
The company envisions a situation where the retail insurance market should be able to contribute between 50-60 per cent of its revenues in the future, as the retail market is the future of insurance in Nigeria, considering the population of the country.
Analysts are of the view that Nigeria’s 200 million population means there are immense potentials in the market for insurers to tap into and grow earnings and magnify contribution to the economy.
Paulinus Oluchukwu Offorzor Executive Director, Technical at Universal Insurance, said that most operators are now beginning to see that retail is the way forward.
“When you look at the increasing population in Nigeria, one of the attractions for foreign players is this great retail population. Some operators are beginning to channel their energy and focus to retail, while still appreciating the corporate market,” said Offorzor.
Despite a young population that craves for consumer, the country’s insurance penetration at less than 1 percent is one of the lowest in the word.
Analysts have attributed the low penetration to weak regulations, apathy towards insurance, and an unpredictable and harsh macroeconomic environment.
With over 50 percent of Nigerians living below $1.98 a day and unemployment rate at 23 percent, taking up a cover is the least of the worries of the average Nigerian.
As a result of these challenges, Royal Exchange’s gross premium income dipped by 7.45 percent to N14.04 billion in December 2019 as against N15.14 billion the previous year.
Similarly, net premium income dipped by 10.19 percent to N8.24 billion as at March 2020 as against N9.18 billion the previous year.