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Tuesday, March 21, 2023

Universal Insurance Can Meet Obligations as Solvency Ratio Remains Strong at 165%

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There are no threats to the going concern status of Universal Insurance Plc as the insurer has the capacity to meet its long-term financial commitment as solvency remains strong at 165 percent.

MoneyCentral’s calculations show that the ratio is well above the regulatory minimum of 100 percent, a strong capital position underpinned by consistent growth in premium income and profitability.

The improvement in solvency ratios reflects the ongoing product shift toward more profitable protection-type products, as well as slower declines in the reserving rate, leading to more available capital, and higher investment income supporting earnings.

For the year ended December 2020, the company showed a positive solvency margin of N4.97 billion, which is higher than the regulators minimum capital adequacy requirements of ₦3 billion, which translates to an excess of N1.97 billion.

Despite the coronavirus pandemic and difficult business environment, the Nigerian Insurer’s net income spiked by 96.36 percent to N1.41 billion in December 2020 from N718.11 million as at December 2019.

The cost control measures put in place by the management and board of directors of Universal Insurance has paid off as the company is spending less to generate premium even amid the high inflationary environment and high diesel cost incurred to run generator plants at the head office and branch office across the country.

Management expense ratio fell to 35.46 percent in the period under review from 80.29 percent the previous year, according to MoneyCentral Calculation. Management expenses were down 16.81 percent to N915.09 million as at December 2020.

Despite an unfavorable underwriting environment as evidenced by rising claims, the insurer’s combined ratio reduced to 95.73 percent in December 2020 from 137.39 percent the previous year, MoneyCentral calculation shows.

The combined ratio is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.

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 than it is receiving from premiums.

Many insurance companies believe that the combined ratio is the best way to measure success because it does not include investment income and only includes profit earned through efficient management.

Of course, Universal Insurance posed underwriting profit of N1.20 billion as at December 2020, which represents a 101.77 percent surge from 2019’s N594.71 million.

The insurer is reaping the reward of copious investment it made in developing products that are increasingly gaining recognition among customers.

For instance, gross premium income spiked by 81.46 percent to N3.23 billion as at December 2020 from N1.78 billion the previous year while net premium income followed the same growth trajectory as it increased by 88.32 percent in the period under review from N1.37 billion the previous year.

The company paid N366.75 million in claims expenses, but incurred N1.14 billion in underwriting expenses.

Regulators across the globe pay much attention to the ratio because it shows how strong a firm is in taking on more big-ticket risk and warding off macroeconomic headwinds that are unavoidable.

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