Coronation Insurance Plc runs on expense ratios that are too high to be able to bolster the profit margin needed to deliver high returns to shareholders in the form of bumper dividend.
For instance, the company’s management expenses as at September 2020 stood at N4.58 billion, which is 82.26 percent of net premium income of N5.54 billion.
This means the insurer is spending more on management expenses to generate each unit of net premium income, and little wonder the combined ratio is as high as 163.73 percent.
Analysts say it is vital for insurance companies to learn to erase costs that are unnecessary, so that they can make up for the low yield environment or declining fixed income securities.
The regulator had said that companies with huge expense profiles were mandated not to spend beyond certain limits, so as to enable them meet claims settlement.
Because insurers operate in a high inflationary environment, they are bound to incur huge management expenses. They also spend money in running generator plants at head offices and branch offices across the country as electricity from the national grid is unreliable.
Analysts have said that companies must learn new ways of doing business that will enable them to deploy their capacity more efficiently.
As a result of huge management expenses and a combined ratio pretty much above 100 percent, Coronation Insurance recorded a negative real underwriting performance of N3.49 billion as of September 2020.
The real underperformance is derived by deducting 1 from the combined ratio.
Expectedly, net profit margin fell to 15.56 percent in the period under review from 17.46 percent the previous year while net income dipped by11.21 percent to N863.79 million as at September 2020.
Coronation Insurance is paying out more in claims than it is getting premium income as the claims ratio increased to 43.69 billion in September 2020 from 39.42 percent the previous year.
Total net claims increased by 10 percent to N2.42 billion in the period under review, from N2.20 billion the previous year.
There are indications that the insurance industry could be exposed to mounting claims on the back of the perils of the EndSARs protests and the coronavirus pandemic.
Industry claims rose 35 percent to N252 billion in 2018 from a year earlier while assets grew by 13 percent to N1.3 trillion, according to the latest available data from the regulator.
Coronation Insurance saw premium income reduce by 0.71 percent to N5.54 billion as at September 2020, no thanks to rising reinsurance expenses.