Operators anticipate better financial year end
THE insurance industry in the first half, H’1, of 2018 witnessed marginal decline in profit occasioned by declining purchasing power of Nigerians coupled with increasing cost of living and cost of doing business. Analysts who spoke to Financial Vanguard said that as cost of doing business continues to mount, topline tends not to be growing at the same rate, putting pressure on the bottom-line. Analysis of financial performance of the sector in the H’1 of 2018 show that profit after tax fell by 4.2 percent to N15.9 billion against N16.6 billion recorded in the corresponding period of 2017. Operators are, however, hopeful that the sector could witness more underwriting activities going forward if the economy sustains its exit from recession. Although, many companies have been forced to re-jig and overhaul staff strength as part of measures to beat down cost, the industry operators anticipate that the sector will witness increased profit at the end of the financial year. Companies’ performance Analysis of industry performance shows that Sun Assurance suffered the highest loss in the period under review, increasing its losses by a whopping 263.4 percent to -N622.9 million against -N171.4 million loss recorded in the corresponding period of 2017. Universal Insurance, however, improved on its bottomline reducing its loss by 106.2 percent to -N17.8 million from a loss of -N287.3 million. Profit decliners With a 90.4 percent drop, Royal Exchange Assurance’s profit stood at N19.5 million against N203.3 million at the corresponding period last year. Linkage Assurance profit declined by 78.5 percent to N493.8 million from the N2.3 billion recorded in the previous year. Axa Mansard profit fell by 46.6 percent to N748.1 million against N1.4 billion. Guinea Insurance profit declined by 40.7 percent to N56.6 million against N95.5 million of the corresponding year. While Veritas Kapital’s profit fell by 73.2 percent to N65.5 million from N244.7 million, even as Regency Alliance profit declined by 30.8 percent to N284.8 million against N411.7 million. Other decliners Standard Alliance profit declined by 24.9 percent to N284.9million as against N379.8 million. Great Nigeria Insurance profit fell by 21.4 percent to N251.2 million against N319.7 million. Mutual Benefits declined by 15.8 percent to N653.6 million against N776.5 million. Custodian Investment profit dipped by 2.6 percent to N3.7 billion against N3.8 billion while Lasaco Assurance profit declined by 1.3 percent to N382.5 million against N387.5 million. Silver liners However, despite the adversity reported by some insurers during the period some other companies recorded outstanding performance. For companies that recorded increase in their profits, Cornerstone Insurance was most significant, as it jumped back to outstanding profit of N322 million from a loss position of N963.2 million. Another outstanding performance was AIICO Insurance reporting a profit increase of 92.2 percent to N1.9 billion against N988.3 million it reported in the corresponding period of 2017. Nem Insurance profit went up by 25 percent to N1.5 billion against N1.2 billion. Consolidated Hallmark profit climbed by 24.5 percent to N148.3 million against N119.1 million while Law Union & Rock profit went up by 14.3 percent to N364.2 million against N318.7 million. Niger Insurance profit climbed by 7.9 percent to N232.4 million as against N215.2 million. Prestige Assurance profit went up by 5.1 percent to N367.4 million against N349.7 million. Continental Reinsurance profit went up by 4.3 percent to N2.4 billion against N2.3 billion while Sovereign Trust profit went up by 3.9 percent to N611.9 million against N588.5 million. Operators’ reaction Some operators attributed their misfortune to operating cost that has been rising during the period. Speaking on the performance of the results, Managing Director of FBN General Insurance, Mr. Bode Opadokun, said that inflation in previous periods really affected insurance business which resulted in high cost of business operation. Opadokun said, “The purchasing power of the naira in previous years is not the same today. Huge operational cost is bringing down profits and if the topline is not moving at the same rate inflation is, then it is going to negatively affect businesses. “Also, high claim ratio is an issue, as claims are on the increase when you compare with previous years and what accounted for it cannot be taken away from inflation as well. For example, we don’t manufacture spare parts in Nigeria, they are imported. If the exchange rate at N200 then is now at N360, and the same spare parts wants to be brought in, of course the price has gone up. It is almost about 80 percent. So it is going to impact on claim ratio. And at the end of the day it affects the bottom-line.
“Unfortunately, we are in a market that is highly sensitive to pricing. It is not automatic that you increase your premium rate because your claim ratio is going up. The customer will object. Recall that when oil prices were down, it affected the operations of some oil majors, even some international oil companies, IOCs, were not operating. So the risk from that sector became a silent risk and the premium available declined. Many oil wells shut down and were not operating, as a result, the risk associated with the sector was lower, so the pricing dropped and the premium income dropped as well. Despite all these, companies still have certain level of overhead cost to maintain, so all of these have really affected profit. “You know how much we are paying for fuel, electricity bill and even staff salary which have all been impacted by inflation. And as an operator, if you don’t overhaul and make the staff happy, it is going to impact negatively even on the overall business.” Also speaking, Vice President of the Nigerian Council of Registered Insurance Brokers, NCRIB, Mr. Rotimu Edu, noted that although the decline in sectoral profit may appear marginal, operators should be innovative in their mode of business operations. He said: “Underwriters must be committed to improving anticipated premium income by being proactive, creative and innovative” President of the Nigerian Council of Registered Insurance Brokers, NCRIB, Mr. Shola Tinubu, said that the sector could witness more insurable activity going forward if the economy sustains its exit from recession. Tinubu said, “The price of oil has increased, therefore, we are going to see more transaction in the oil and gas sector and we think that it will continue going forward.” Former Chairman of Nigerian Insurers Association, NIA, and Managing Director of Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha said that the ideal thing is to price right. Efekoha said, “A situation where there is a major loss on an account, and the next year the insurer decides to reduce the premium by half, doesn’t speak so well of us. “If you are trading with your shareholders fund or capital and you think that is the best way as management to deploy your capital, all well and good. But if we must do well as an industry and as operators, we must price right, so that we can live up to our expectation or obligation to all stakeholders.”
