Insurers see claims rise in Q3 as underwriting profit shrinks

Insurers quoted on the floor of the bourse are paying more claims to policyholders as such payouts have suppressed underwriting profit.

A cursory look at the third quarter financial statement of six insurance firms: Aiico Insurance, Mansard, Continental Re, Wapic, Consolidated Hallmark, and Royal exchange, showed cumulative claims expenses increased by 47.05 percent to N22.83 billion from N15.52 billion the previous year.

The spiraling claims resulted in a 9.96 percent drop in cumulative underwriting profit to N9.03 billion in the period under review.

For those who have been paying attention to the happenings in the industry are aware that insurance companies are compelled to soften their rates and risks to cheer some consumers grasping for breath as a result of the economic downturn.

Experts say firms have incurred huge payouts due to claims on motor accidents while mass layoffs means contributory pensions by employees will be lost, hence compounding insurers’ woes.

Insurance business is usually the most hit when there is economic recession,” said Mayowa Adeduro, managing director of Anchor Insurance Plc.

“This is because people do not have so much money to spend in times like this, so you are compelled to bring down rates to accommodate reluctant consumers, otherwise they may decide to go uninsured,” said Adeduro.

Nigeria’s economy contracted by 2.1 percent in the second quarter on the back of lower oil price and a severe dollar shortage, according to the NBS. The IMF has predicted that the GDP will contract by 1.80 percent by 2016.

Inflation has risen to 17.90 percent for the months of September, the highest in 11 years. This means a lot people will have less money in their pockets to buy a policy.

Further analysis of the financial statement of the 6 firms revealed they are paying more claims from premium earned given increased claims ratio otherwise known as loss ratio.

Aiico’s year on year (yoy) loss ratio was up (+29.63 per cent), Mansard increased (+15.38 percent), and Wapic jumped (23.03 percent) and Continental Re moved (+8.19 percent).

However, these firms are profitable and there are no threats to going concern, as their average combined ratio (CR) of 81.86 percent is less than the 100 percent threshold.

The CR is the combination of Claims ratio and underwriting ratios.
Nigeria insurance industry contributed less than one percent to the country’s economy of $493 billion.

This compares with African countries like South Africa, Namibia and Kenya, which have 15.4 percent, 7.7 percent, and 3.4 percent respectively.

A slowing down of the economy will necessarily imply a decline in insurance business,” said Funmi Babington-Ashaye MD/CEO Risk Analyst Insurance Brokers Ltd
BALA AUGIE