Wapic Insurance surmounts economic headwinds, as earnings spike

Wapic Insurance plc has surmounted the economic headwinds dampening the growth potential of most companies as the Nigerian insurer’s earnings spiked on the back of aggressive market penetration, focus strategy and proper  risk management. 

This stellar performance means the company has leapfrogged its competitors to becoming a bellwether insurance company that has been consistently adding value to the wealth of shareholders through robust earnings, strong asset base and tight liquidity position.

For the year ended December 2015, Wapic Insurance net income surged by 444.68 percent to N1.29 billion from N236.83 million, the previous year.

Profit before tax also followed the same growth trajectory as it surges by 2115 percent to N1.66 billion in N58.57 million in 2014; driven by gains on profit of sale of associate, worth N764.43 million.

Wapic also recorded a strong underwriting performance, as net premium income (NPI) increased by 39.22 percent to N3.94 billion in December 2015 compared with N2.83 billion as at December 2014.

Also, gross premium written (GPW) grew by 36.51 percent to N7.1 billion in the period under review to N5.20 billion in 2014. Gross Premium Income (GPI) increased by 30.63 percent to N6.14 billion in 2015 as against N4.70 billion in 2014.

An actuarian who doesn’t want his name mentioned, attributed Wapic’s impressive performance in the period under review to solid risk management practices.

“It shows that the insurer is practicing effective risk management in the selection of its risks and it is also aggressive about investment returns,” said the actuarian.

“The few businesses it has in its books are good or profitable business. The company is no longer writing volumes. They manage how they utilise their funds,” the actuarian said.

Wapic’s combined ratio (CR) increased to 73.35 percent in 2015 from 65.53 percent, the previous period. This means the company has financial strength and there are no threats to its going concerns.

When the combined ratio is under 100 percent, underwriting results are generally considered profitable and when the combined ratio is over 100 percent, underwriting results are generally considered unprofitable.

As a result of falling CR ratio, Wapic recorded positive real underwriting results of N1.05 billion. Underwriting profits were up by 12.74 percent to N1.47 billion in 2015 from N1.31 billion in 2014.Net underwriting expenses increased by 21.38 percent to N4.37 billion in 2015 from N3.16 billion, the previous year.

Industry experts say 2015 was a vintage year for Wapic and its financial performance is commendable, given the tough operating and unpredictable environment it operates in. Insurance penetration has been low in Africa’s largest oil producer, as rising unemployment, extreme poverty among the people, lack of awareness on the usefulness of a cover and infrastructure deficits continue to hamstring operators.

For instance, in some parts of the country, taking a cover is Haram (abomination), as some people perceive life insurance to mean a premonition of their own death.

Apart from the cultural issues, many people are not aware of the benefits of insurance cover,” said Alphonse Okpor, Chief Executive Officer/Managing Director, African Alliance Plc, in a recent interview with BusinessDay.

As workers’ salaries are not paid due to damped government spending, stoked a sharp fall in the price of oil by 60 percent to $40, Nigerians would rather spend the little money in their pockets on consumption than take an insurance cover.

The recent figures from the NBS corroborates the languish state of the economy, as the consumer price inflation stood at 9.6 percent year-on-year in December, up 0.2 percentage points from November, and still above the central bank’s target upper limit of nine percent.

Economic growth slowed to 2.1 percent in the third quarter of 2015 from 2.8 percent in the fourth quarter, the lowest in a decade.

The economic slowdown also undermines regulators plans of tripling the value of the insurance market by 2017, on the back of building the reputation of the sector.

NAICOM, in 2013, through its former Director, Daniel Fola, had said   the value of insurance contracts should rise to about N1 trillion ($6.4 billion) in 2017; about 3 percent of gross domestic product, from N300 billion as at that the period, or less than 1 percent of GDP.

Despite all the challenges crimping the growth of insurers in Africa’s most populous nation, Wapic remains aggressive about the settlement of claims to policy holders, as total net claims increased by 63.54 percent to N1.63 billion in 2015 from N997.57 million in 2014.

The company’s claims ratio moved to 45.37 percent in 2015 compared with 35.30 percent in 2014. This means for every N100 the company collects in premium, it spends N45 on claims.

Analysts say insurance firms are paying more claims, as they do not like to carry over the claims to the next year, in order to keep a high reserve.

“This could be because claims processes are now becoming more efficient,” said an analyst who also didn’t want his name mentioned.

Wapic’s underwriting expenses increased by 26.97 percent to N1.22 billion in December 2015 compared with N960.08 million in 2014. However, underwriting expenses ratio dropped to 30.96 percent in 2015 as against 34 percent as at December 2014. Rreinsurance expenses were up by 17.64 percent to N2.20 million in 2015 as against N1.87 billion in 2014.

Wapic has utilised shareholders’ resources in generating higher profit as return on equity (ROE) increased to 8.62 percent in December 2015 from 1.67 percent as at December 2014. Return on assets moved to 5.44 percent in December 2015 from 1.67 percent as at December 2014.

The company’s total assets were up by 7.48 percent to N23.70 billion in December 2015 compared with N22.05 billion as at N22.058 billion. Total equity stood at N14.96 billion.

Wapic’s share price closed at N0.50 on the floor of the exchange, while market capitalisation stood at N6.69 billion.

BALA AUGIE