AXA Mansard Insurance Plc needs to bolster solvency capital that will pave the way for the insurer to minimise risk amid financial obligations are mounting, according to a recent report by Afrinvest Securities.
The firm’s solvency capital declined to N34.09 billion in December 2021 from N37.29 billion in 2020 due to the sharp rise in liabilities relative to the change in assets, according to the research house.
“As a result, the solvency margin under the current regulatory regime declined to 5.22x from 6.46x,” said the analysts.
“However, applying the proposed regulatory requirement, the solvency margin stands at 0.89x which is lower than the 1.00x threshold,” added the analysts.
The solvency margin is a minimum excess of an insurer’s assets over its liabilities set by the regulator. It can be similar to capital adequacy requirements for banks.
Regulators ensure that companies have strong capital buffers to absorb macroeconomic shocks and, more importantly, insurers need a solid capital base that ensures they are able to meet their obligation to policyholders.
Nigeria Insurance Commission (NAICOM) had jerked up the minimum capital requirement of entities but it has been shifting the goal post as it continues to postpone the deadline for recapitalisation.
The company has total liabilities of N69.97 billion as at December 20221, which is 22.78 percent higher than 2020’s N56.74 billion.
There are no threats to AXA Mansard’s going concern status and the company has been introducing innovative products into the market that are driving top line (revenue) growth.
It posted an underwriting profit of N9.23 billion in December 2021, which is 32.68 percent higher than 2020’s N7.43 billion.
The improvement in underwriting income was buoyed by double digit growth in premium income.
However, profit was hit by huge fair value loss on financials and most insurers felt the pang of the exceptional item that prevented the payment of bumper dividend.
By the end of the year, analysts at Afrinvest expect an underwriting margin of 15.67 percent, backed by the expansion in the HMO business which should support growth in premium income.
“This should translate to 4.09% YoY growth in underwriting profit,” said the analysts.
Net income dipped by 21.80 percent to N3.55 billion in December 2020. Of course, the return on average equity (ROAE) reduced to 9.82 percent in December 2021 from 14.42 percent the previous year.