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Goldlink Insurance, International Energy Insurance Plc and Staco Insurance, may come under the hammer of the National Insurance Commission (NAICOM) next due to continued poor operating performance that renders them technically insolvent.
Last week, the insurance industry regulator who has been blamed by some stakeholders for being a toothless bulldog, issued a letter to Niger Insurance, a composite insurer, expressing its intention to withdraw the Company’s registration certificate.
The Nigeria Insurance Association, NIA, the umbrella body of insurance firms in the country, had suspended Niger Insurance from its membership in June last year.
According to NIA, the expulsion became necessary on the back of their defaults on obligations to policyholders especially on claims payment amongst others.
Of course, Niger Insurance in a note to the Nigeria Stock Exchange (NSE) admitted receiving the letter from NAICOM which it said was premised on some operational matters. The firm added that it has been given time to explain its position and appeal the withdrawal.
A lot of legacy insurance firms are in a precarious position because their premium income or revenues can no longer cover claims, which threatens going concern status and hinders them from partaking in big-ticket transactions, MoneyCentral investigations show.
Of course, recurring losses often lead to deteriorating solvency margin ratio, which means these firms face huge claims that they cannot absorb.
Niger Insurance has been struggling with a huge expense ratio as it continues to spend more on operating and claims expenses, which is why it posted a loss of N2.63 billion in December 2021.
Interestingly, management expenses that comprise directors pay, workers’ salaries and miscellaneous expenses stood at N1.81 billion, which is 4.59 times net premium income.
Claims expenses of N1.19 billion are 3.06 times net premium income, little wonder the insurer posted underwriting loss of N1.04 billion while the combined ratio has hit 839.10 percent.
The insurer has a N11.11 billion in negative retained earnings, which means it has been making more net losses than profit over a long period of time.
Another beleaguered firm is Goldlink insurance Plc, which last published its audited financial statement in 2018, and it has not been punished for late filings by the regulator.
Goldlink has retained losses of N11.69 billion and a negative retained shareholders’ fund of N7.25 billion amid rising claims expenses and dwindling premium income.
Staco Insurance which last released its financial statement in 2018 is grasping for breath.. It posted a net loss of N383.98 million and has a negative shareholders’ fund of N182.43 million.
Last year, the Asset Management Corporation of Nigeria (AMCON) took over the NICON Insurance Limited and Nigeria Reinsurance Corporation, the two companies owned by beleaguered businessman and politician Jimoh Ibrahim over N69 billion debt.
Proposed Acquisition to International Energy Insurance rescue
The proposed acquisition of International Energy Insurance or IGI Plc by Norrenberger Advisory Partners Limited (NAPL) which has been approved by the regulator salvages an insurer that is at the brink. NAICOM may however still sanction the insurer if the deal fails to materialise with the necessary capitalisation.
This is because IGI has been overwhelmed by huge liabilities and it is in need of capital injections.
For instance, its total liabilities of N19.50 billion exceeds assets of N8.72 billion, resulting in negative retained earnings of N10.95 billion.
The insurer is spending its way into the future as management expenses of N1.20 billion is 2.64 times net premium income.
Regulator needs to act fast and unlock potentials in the sector
Without a solid capital base and strong earnings growth, insurers cannot compete with their peers in Sub-Saharan Africa.
The abysmally poor contribution of the insurance sector to the economy beckons there has to be radical reforms that will help unlock the potentials in the industry.
The sector continues to lag its peers in terms of penetration which stood at 0.5% compared with South Africa (12.9%), Kenya (2.8%), Angola (0.8%) and Egypt (0.6%) while density at $6.2 also remains weak compared to South Africa ($762.5), Kenya ($40.5), Angola ($30.5) and Egypt ($22.8).
A regulatory shake up between NAICOM and Nigerian Communications Commission (NCC) would allow insurers to leverage the customer base of MNOs to support penetration especially at the retail end of the market, analysts say.