It appears Royal Exchange Insurance has curtailed its operations significantly as it earned no revenue from the non-life business, a triple whammy for an insurer reeling from recurring losses.
Perhaps more worrisome is that the insurer pays out more claims than the premium it earns, as obligations to policyholders are mounting.
Royal Exchange released its full year financial statement that showed it posted a loss after tax of N973.24 million from a loss position of N77.11 million as at December 2020.
A cursory look at a six-year trend of the books showed the insurer has been posting losses since 2016, and which is why it has negative retained earnings of N5.38 billion.
What is more, it is a step away from technical insolvency, because total liabilities will soon be exceeding total assets if something urgent is not done by the board of directors to revert the underperformance trend.
For instance, shareholders’ funds have reduced by 83.52 percent to N603.133 million as at December 2021.
The deteriorating financial conditions were triggered by poor performance at the revenue segment, but there is light at the end of the tunnel as an investment house had bought a stake in the company with the expectation of injecting capital that will help bolster working capital and strengthen the balance sheet.
Gross premium written (GPW) fell by 81.29 percent to N2.86 billion in December 2021 as against N15.29 billion the previous year.
A breakdown of GPW shows the company earned no revenue from non-life business, and that is in stark contrast with premium income of N118.50 billion realised from the segment in 202o.
The trend trickled down to other top lines as gross premium income (GPI) dipped by 82.26 percent to N2.66 billion in December 2021 from N15.02 billion as at December 2020.
Net premium income (NPI) followed the same downward trend as it reduced by 74 percent to N2.13 billion in December 2021 from N8.19 billion as at December 2020.
Analysts are optimistic that Pan-African asset management Company AfricInvest minority stake in Royal Exchange will enable the insurer to participate in large-ticket corporate transactions and diversify existing business and product lines as well as diversifying delivery channels.
The additional capital injection expected from the new partner will enable the insurer to expand its underwriting capacity in key business areas such as the retail mass market, agricultural insurance and insurtech, which is the future of insurance.
Of course, Royal Exchange is struggling with deteriorating underwriting capacity brought on by spiraling claims expenses as the combined ratio increased to 153.60percent in December 2021 from 116.54 percent the previous year.
It posted an underwriting loss of N471.77 million as at December 2021 from a favorably benign condition (profit) of N1.11 billion.
The insurer paid total claims of N1.69 billion as at December 2020, and that is 36.46 percent higher than 2020’s N1.69 billion.
Loss ratio otherwise known as claims ratio increased to 79.33 percent in the period under review from 32.59 percent the previous year, according to MoneyCentral calculations.
However, the total expense ratio fell to 74.20 percent in December 2021 from 83.95 percent the previous year.
Total management expenses fell by 61.96 percent to N863.85 million in the period under review from N2.27 billion the previous year.