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African Alliance Auditor Says Insurer’s Future in ‘Significant Doubt’

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Accumulative losses at African Alliance Insurance Plc rose 23.60 percent to N37.34 billion last year, as auditor Deloitte & Touche said the insurer’s ability to continue as a going concern may be in ‘significant doubt.’

In a statement to the Nigerian Stock Exchange (NSE), Deloitte and Touch said the company and the group recorded a loss after tax of N7.3 billion and N7.02 billion as at December 2019 respectively.

The auditors added that the company had a negative insurance solvency margin of N17.97 billion, and the total admissible assets less net insurance and investment contract liabilities amounted to a deficit of N15.5 billion (group: N15.4billion).

While directors have set forth specific measures and actions to address the deteriorating financial conditions and bring back the company to profit making, the auditors have expressed a qualified report on the financial statement.

“Along with other matters stated therein, indicate that a material uncertainty exists that may cast significant doubt on the company’s and group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter,” said the auditors.

Indeed, Africa Alliance is in dire need of restructuring that will help savage it from collapse as its total current liability of N51.35 billion exceeded total assets of N40.0 billion, resulting in a negative shareholders’ fund of N11.31 billion.

It posted a loss after tax of N7.03 billion in December 2019, which is a 161.33 percent surge from N2.69 billion loss incurred in 2018.

A cursor look at the books shows the firm is paying out more in claims that it generates in premium income, which is why loss ratio stood at 129.80 percent in the period under review, but lower than 2019’s 140.40 percent.

What this means is that the insurer spent N129.80 on claims expenses for every N100 it realized in premium income; underwriting losses have been piling, culminating in operating inefficiency as combined ratio way far exceeds the threshold.

Africa Alliance posted underwriting loss of N9.52 billion in December 2019 from 2018’s loss position of N2.57 billion.

Combined ratio has hit 193.3 percent as at December 2019, the highest in the industry, based data compiled by Money Central.

Negative real underwriting results stood at N7.45 billion in the period under review.

The negative real underwriting results-which measures how efficient a company is in its underwriting policies-is arrived at by deducting 1 from combined ratio.

A rule of thumb shows a ratio higher than 100 percent is a harbinger of losses.

The combined ratio measures the money flowing out of an insurance company in the form of dividends, expenses, and losses.

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.

With the unprecedented macroeconomic uncertainties caused by the coronavirus pandemic and the ensuing lockdown imposed by government to curb the virus, the Directors of Africa Alliance have a herculean task to turnaround a company that is at the brink of technical insolvency.

The management of the company has considered the potential implications of COVID-19 on the Company’s ability to continue as a going concern and have reassessed its action plans as submitted to the regulator vis-à-vis recapitalization deadline of 31 December 2020.

“Management does not intend to liquidate the entity or cease trading, emergence of covid-19 will not impact our year 2019 financial statements, accordingly the financial position and results of operations as of and for the year ended 31 December 2019,” said management in notes to the financial statement.

“It is not possible to reliably estimate the duration and severity of the consequences and impact covid-19 will have on the financial position and results for future periods,” management summed.

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