Nigerian Insurers are reaping the rewards of parking their money in the bonds and equity markets as investment income improved.
When combined ratio are high due to rising claims and underwriting expenses, companies rely on investment in financial asset to argument for bad underwriting results.
For the year ended December 2019, the largest insurers realized N80.63 billion in investment income, representing a 24.52 percent increase from 2018’s N64.89 billion.
A breakdown of the figures Leadway Assurance Company Limited’s investment income spiked by 38.84 percent to N31.81 billion as at December as the insurer’ strong investment portfolio continues to bolster profit.
Custodian Investment Plc’s investment income was up 23.80 percent to N8.89 billion as at December 2019 as against N7.18 billion as at December 2018.
AIICO Insurance Plc’s investment income was up 16.43 percent to N10.54 billion as at December 2019 as against N9.05 billion the previous year.
Royal Exchange Plc’s investment income grew by 90.97 percent to N679.41 million as at December 2019 as against N355.76 million the previous year.
Cornerstone Insurance Plc’s investment income surged by 107.35 percent to N2.39 billion as at December 2019 as against N1.15 billion the previous year.
Linkage Assurance’s investment income increased by 68.26 percent to N2.51 billion in the period under review from N1.97 billion the previous year.
Insurers are increasingly worried that their investments will not achieve the desired returns amid equity market volatility and a precipitous drop in short term government securities as the central bank banned individuals and local corporates from its official foreign exchange window.
That is on top of the unprecedented macroeconomic uncertainties caused by the coronavirus pandemic and sudden crash in crude oil price.
The COVID-19 shocks are expected to hit insurers’ profitability because of rising obligations from policyholders who had lost their jobs during the lock down period.
Poverty and rising unemployment have hindered many Nigerians from taking cover, and an economic downturn that dampened consumer confidence is a double whammy for an industry that contributes less than 1 percent to GDP.
As a result of expected storms to global value chain due to coronavirus, the International Monetary Fund (IMF) has forecast that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020.
But the global lender expects Nigeria’s economy to rebound by 2.6 percent in 2021.
The Nigerian Stock Exchange (NSE) All Share Index (ASI) has been in negative territory of 7.39 percent since the start of the year as investors are not yet convinced that the economy will rebound given lack of policy direction on the part of government and poor corporate results.
Analysts have warned that insurers with very weak capital and deteriorating margins are susceptible to take over by bigger firms with solid liquidity and efficient underwriting capacity.