Alliance Insurance Plc is paying out more money in claims than it is receiving from premiums, which is why the insurer has been recording recurring losses.
The 2020 audited financial statement of the company shows it posted a loss after tax of N4.03 billion in December 2020 from N3.74 billion as at December 2019.
Operating losses hit N5.58 billion in December 2020 from N4.22 billion as at December 2019.
While Alliance Insurance is not technically insolvent as its total asset exceeds total liabilities, mounting obligations to policyholders are increasingly eroding profitability in an unfavorable underwriting environment.
For instance, the combined ratio increased to 197.47 percent in December 2021 from 176.02 percent the previous year, according to MoneyCentral calculations.
The Nigerian insurer posted underwriting losses of N1.85 billion in the period under review from N162.86 million the previous year.
The combined ratio is typically expressed as a percentage. A ratio below 100 percent indicates that the company is making an underwriting profit.
Alliance Insurance paid total claims of N4.65 billion, which is 0.86 times net premium income, according to MoneyCentral calculations.
In short, total claims expenses were up 29.37 percent to N4.65 billion in December 2020 from N3.60 billion a year ago; claims ratio expanded to 86.43 percent in December 2020 from 66 percent the previous year.
Alliance Insurance is not efficient in using its resources to drive top-line growth (revenue) as total expenses (management plus underwriting expenses) of N5.98 billion is 111.05 percent of net premium income.
The insurer has been meeting its obligations to policyholders, but it has to deploy cost control measures to shrink the accumulated losses in the balance sheet.
In the first half of 2021, Alliance Insurance has paid N1.8 billion in claims, demonstrating its commitment and resilience to customers even in tough times due to the effects of the COVID-19 pandemic on the economy.
The underwriter also said that it refunded 15 per cent of all premiums received from customers after 24 months without a motor claim from its customers.
“As risk-bearers, claims settlement is the core of any insurance business, and we are fully aware of our obligations to all stakeholders,” said Adeolu Adewumi-Zer.
Further analysis of the financial statement of Allianz Insurance’s financial statement shows gross premium income dipped by 5.38 percent to N12.06 billion in December 2021 from N12.47 billon the previous year.
Net premium income was down 1.19 percent to N5.39 billion in the period under review as against N5.45 billion the previous year.
Investment income was down 20.96 percent to N943.27 million as at December 2020, due to the precipitous drop in both long- and short-term government securities brought on by the central bank’s dovish tone.
However, the uptick in bond yield since the start of the year could reverse the tide and bolster investment income.