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Insurers in Africa’s largest economy are facing mounting obligations to policyholders as inflationary pressure on claims cost continues to erode profitability.
Investigations by MoneyCentral show the most exposed segment to the systemic risk are the property and motor insurance lines.
The most liquid and capitalized insurers collectively incurred N59.60 billion in claims cost in the first half of the year, which is 13.19 percent higher than 2020’s N52.65 billion, according to data gathered by MoneyCentral.
The claims experience has not changed and inflation rate is affecting everything, said Moronfola Monsuru, actuarial scientist at Coronation Insurance Plc.
Inflation that forced the central bank to adopt a hawkish stance has risen to 19.67 percent in July, the highest since 2005 17 years, according to latest data from the National Bureau of Statistics (NBS).
The weakening of the Naira has continued to push the cost of imported goods and raw materials as the Russian and Ukraine war has exacerbated added fire to the brazier, worsening the cost of living as inflation continues to steal workers’ wages.
An inflationary environment significantly discourages people whose pockets have been squeezed from taking an insurance cover, and companies are forced to pass such higher costs to existing policyholders in the form of a hike in premium rates.
Spiraling inflation claims costs are responsible for deteriorating underwriting profit margin as insurers are spending more on claims than the premium that they are getting.
For the first six month through June 2022, the largest quoted insurer in Africa’s largest economy saw a combined underwriting profit dip by 52.13 percent to N27.71 billion from N57.89 billion as at June 2021, according to data gathered by MoneyCentral.
The average industry combined ratio deteriorated to 114.85 percent in June 2022 from 110.06 percent the previous year, according to a calculation by MoneyCentral.
Analysts at Meristem Securities in a recent note to clients are of the view that higher claims given the surge inflation rate alongside soaring operating cost could impair the profitability of the sector this year.
A slim profit is one of the reasons insurers have been paying meagre dividends to their shareholders, which is partly responsible for poor valuations as investors’ apathy towards industry stocks persists.
All these have combined to weaken investors’ sentiment towards the sector as major tickers recorded decline in the total returns for the period,” said analysts at Meristem Securities.
But insurers have shown resilience in the payment of claims to policyholders, which is a paramount obligation that must be honored for them to underpin public confidence.