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Insurers Cede N108.90bn of Premium to Reinsurers in 2020

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Insurers in Africa’s largest economy have ceded about N108.90 billion to the reinsurance markets in 2020, representing 34.36 percent of direct premiums income for the year.

That compares with N99.34 billion in 2019, which is 32.46 percent to direct premium income for the year, according to MoneyCentral calculations.

Analysts have observed that cession rates among emerging market regions-including Africa- are higher than overall, indicating that these counties are of higher importance in the reinsurance sector than in the primary market.

Reinsurance is one part of the insurance industry where companies agree to transfer part of their portfolios to other companies.

By ceding a portion of their risk, ceding companies reduce their overall risk exposure and liability. This allows them to remain solvent if they have to pay out a big insurance claim. It also helps insurance companies keep premiums lower for their policyholders.

Leadway Assurance, the largest insurer by total asset, incurred N17.42 billion in reinsurance expenses, which represents 31.87 percent of gross premium income.

AIICO insurance, the largest insurer by premium income, was reinsurance expenses increased by 26.76 percent to N7.90 billion while it ceded 13.01 percent of premium income.

In the General Business Segment, AIICO Insurance ceded N6.93 billion to reinsurers, while N968.72 million was surrendered to reinsurers in the Life Business segment.

AXA Mansard Insurance ceded N13.80 billion to reinsurers, which represents 30.32 percent of premium income.

Custodian Investment’s reinsurance expenses were up 26.46 percent to N24.25 billion in June 2021 from N19.17 the previous year while reinsurance ceded from premium income moved to 41.70 percent in the period under review from 40.62 percent as at June 2020.

Coronation Insurance ceded 56.91 percent of premium income to reinsurers, while reinsurance expenses were up 22.89 percent to N9.93 billion as at June 2020.

Mutual Benefit Assurance ceded 17.46 percent of premium income to reinsurers, while reinsurance expenses increased by 18.23 percent to N3.34 billion as at December 2020.

The reinsurer expenses, which is part of the cost pull, adds to insurance companies’ total expenses.

Them total operating expenses (claims plus underwriting plus management expenses) for the largest players in the industry has hit N324.22 billion in December 2020, which represents 16.38 percent of 2019’s N278.58 billion, according to data compiled by MoneyCentral.

Analysts have warned that insurers are spending their way into the future as rising costs are preventing top line (premium) impressive growth to translate into bottom line (profit) growth.

Of course, inflationary pressures, huge energy costs as electricity from the grid is erratically unstable, money incurred in the acquisition of latest technology and talented staff are beyond the control of firms who operate in tough and unpredictable macroeconomic environments.

Analysts at AM Best say inflationary pressure may increase over the short- to-medium term if the Nigerian government’s fiscal budget is not met and its foreign currency reserves diminish.

“Higher inflation may introduce volatility into insurers’ claims costs, although the associated elevated premium growth could partially offset this,” said the analysts.

The gap between the rises in premium income and costs for insurers is at the widest point in six years, which puts some companies in a perilous state should the economy relapse into negative growth.

Money Central investigations shows that combined net premium income of the largest insurers have risen by a mere 0.39 percent to N290.21 billion in December 2020, while their combined claims expenses rose by 27.84 percent to N191.46 billion.

The average industry claims ratio increased to 57.42 percent in December 2020 from 42.80 percent as at December 2019.

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