Payment of Claims, Put Insurance Company Under Pressure

The insurance industry seems to have come under pressure of massive growth in claims far ahead of Gross Premium Written, GPW, a development which has brought down aggregate industry profit by 5.1 per cent to N16.8 billion in the first half of 2021, H1’21, against N17.7 billion recorded in the corresponding period of 2020.

Though this development appears to be a reversal of fortunes, industry operators believe other performance indicators are signaling recovery which may lead to positive bottom-lines at end of 2021 financial year.

Though profit declined by 22.6 per cent to N12.3 billion in the corresponding periods of 2019 from N15.9 billion in 2018, it went up massively by 43.9 per cent in the H1’20, a rebound which has now been overturned in the H1’21.

Industry profitability has remained threatened as claims payments grow faster than GPW, the industry’s major income line in H1’21.

Though industry operators express optimism that full year performance will remain positive they have also indicated that weak patronage from the Federal Government’s insurance businesses has remained a major threat to both GPW and the bottom-line.

According to the operators, FG’s insurance policies are long overdue for renewal, even as some of the bids by the Ministries, Departments and Agencies, MDAs, have been completed and awaiting payment, but the government has not released money for any.

Analysis of financial performance of 17 insurance companies recently submitted to the Nigerian Exchange Group show a robust GPW with a 23.2 percent upsurge to N217.3 billion from N176.4 billion in the corresponding period of 2020.

Last year which witnessed the economic lockdown as a result of the COVID-19 pandemic, GPW fell by 7.1 per cent to N176.4 billion in H1’20, from N189.9 billion in the corresponding period of 2019.

In 2019, GPW had gone up by 11.5 per cent to N189.9 billion from N158.2 billion recorded in 2018.

However, growth in claims payment, on the other hand, has been consistently outpacing growth in GPW as the claims figure went up by a whopping 40.8 per cent in H1’21 to N91.8 billion from N65.2 billion in the corresponding period of 2020.

In 2020, when GPW witnessed a decline, claims payment maintained its upward trend, rising 0.9 per cent to N65.2 billion from N64.6 billion.

In 2019, claims payment went up by 19.6 per cent to N64.6 billion from N54.5 billion recorded in 2018.

Operators optimistic

Speaking on the performance of the sector in H1’21, Chief Operating Officer of Africa Reinsurance Corporation, Mr. Ken Aghoghovbia, said that performance of the sector in the H1’21 was quite good.

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He stated: “The first half year has been quite good generally. We all know there was a dip in the GDP in all major sectors last year and from that steep drop in the GDP which was caused largely by the COVID-19 pandemic, there is now some form of recovery.

Rates went up, loses were not too bad. It has not been a bad first half.”

Also speaking, Managing Director of Afriglobal Insurance Brokers Limited, Mr. Casmir Azubuike, stated that the performance of the year so far has been commendable.

He said: “Compared with last year, the industry has done fairly well in H1’21 as the first half of 2020 was really challenging for the sector as that was the peak of the COVID-19 era.”

Companies’ performance

Analysis of companies’ performance in the period under review show that Universal Insurance had the worst GPW-to-Claims ratio as the company’s GPW declined by 4.5 per cent to N2.1 billion from N2.2 billion. But claims payment skyrocketed by a whopping 2,997.1 per cent to N5.9 billion from N190.5 million.

Coronation Insurance’s GPW declined by 10.8 per cent to N8.3 billion from N9.3 billion. Claims payment jumped by 81.3 per cent to N2.9 billion from N1.6 billion.

Veritas Kapital financials show 63.2 per cent increase in GPW to N3.1 billion from N1.9 billion. Claims payment went up by 224.1 per cent to N522.1 million from N161.1 million.

Linkage Assurance GPW increased by 30.2 per cent to N6.9 billion from N5.3 billion. Claims paid increased by 180.5 per cent to N1.02 billion from N363.6 million.

Sunu Assurances GPW went up by 54.2 per cent to N3.7 billion from N2.4 billion. Claims payment went up by 134.5 per cent to N1.9 billion from N810.4 million.

Consolidated Hallmark GPW increased by 15.1 per cent to N6.1 billion from N5.3 billion. Claims payment rose by 109.1 per cent to N2.3 billion from N1.1 billion. Nem Insurance GPW went up by 24.8 per cent to N16.1 billion from N12.9 billion. Claims payment increased by 105.3 per cent to N3.9 billion from N1.9 billion.

Prestige Assurance GPW increased by 38.5 per cent to N5.4 billion from N3.9 billion. Claims payment increased by 53.3 per cent to N2.3 billion from N1.5 billion.

AIICO GPW went up by 17.5 per cent to N37.5 billion from N31.9 billion. Claims payment increased by 41.3 per cent to N20.9 billion from N14.5 billion.

Companies with better GPW-Claims ratio

Against the backdrop of claims outpacing GPW, two companies recorded a reverse situation.

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Guinea Insurance recorded 57 per cent increase in GPW to N807.8 million from N514.4 million. Claims payment declined by 29.9 per cent to N70.4 million from N100.4 million. Regency Alliance GPW increased by 2.4 per cent to N4.2 billion from N4.1 billion. Claims payment declined by 0.1 per cent to N1.096 billion from N1.097 billion.

For companies whose GPW outpaced their claims payment, Mutual Benefits was first with 50 per cent increase in GPW to N15.3 billion from N10.2 billion. Claims payment went up by 23.6 per cent to N6.8 billion from N5.5 billion.

Lasaco Assurance GPW increased by 40.6 per cent to N9.7 billion from N6.9 billion. Claims payment increased by 26.7 per cent to N1.9 billion from N1.5 billion. Cornerstone GPW went up by 34.3 per cent to N10.8 billion from N8.04. Claims payment went up by 9.5 per cent to N2.3 billion from N2.1 billion.

Sovereign Trust GPW went up by 31 per cent to N7.9 billion from N6.03 billion. Claims payment increased by 26.7 per cent to N1.9 billion from N1.5 billion.

Axa Mansard GPW increased by 21.9 per cent to N37.2 billion from N30.5 billion. Claims payment increased by 20.6 per cent to N12.3 billion from N10.2 billion. Custodian Investment GPW increased by 20.5 per cent to N42.2 billion from N35.01 billion. Claims payment went up by 9.9 per cent to N23.2 billion from N21.1 billion.

Operators’ reaction

Speaking on the industry performance, Managing Director of FBN Insurance Brokers, Mr. Olumide Ibidapo, said that it has been a fair performance considering the challenging economic environment.

He stated: “If you look at Q1 of the 2021, the industry witnessed a contraction of more than four per cent. In Q2 2021, we are now having a growth of more than 15 per cent which to me is a good performance even though 2020 was a lockdown year. So any major performance in 2021 will reflect this positive growth. So looking at the industry as a whole, it has been a fair performance considering the challenging economic environment that we are operating in.”

On the outlook for the remaining part of the year, Ibidapo said: “It has been a tough journey most especially looking at the event of 2020 and the outcome of the EndSARS crisis and lockdown of the economy. Insurance-wise, majority of the claims lodged following the EndSARS event are being settled to a greater extent and billions of naira have been settled in claims by the insurance industry.

The uptake is looking good. Second half of the year will be positive.”

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However, Managing Director of Afriglobal Insurance Brokers, Mr. Casmir Azubuike said that the industry would have performed far better if only government is responsive to its insurance responsibilities and to the economy as a whole.

Azubuike said: “The industry has performed fairly well thus far but it could have been better. The reasons for the fair performance are obvious such as the economy is not getting any better, government is hardly paying insurance premium when due, some of the bids government did through parastatals have been completed and awaiting payment, up till now they have not been able to release money.

“This goes a long way to show that there is cash flow issues cutting across. For corporate bodies and the retail market, the story is not different. Companies are not doing very well.

“You and I know that in this economy, insurance is about one of the last things people consider when they list their priorities. So corporate bodies are releasing what ordinarily they should have taken insurance on just to make sure that they conserve funds.

“The retail market is also suffering because when the earning power of people falls drastically, it has direct effect on insurance patronage and consumption.

“People are still recovering from the effect of the pandemic and the lockdown. Many companies are still making losses as a result of the lockdown of last year, most of them are still trying to pick up as if they are starting afresh. The effect is really being felt across the insurance industry.

“Group life insurance is one of the compulsory insurance policies made compulsory by the Insurance Act of 2003 and that law was made by government. One would expect that government should be the first to implement before you compel others to follow suit but you have a situation where government parastatals send out bids and insurance companies are enlisted and prequalified and the policy is due for renewal but you don’t see premium payment.

“So the commitment on the part of the government is hardly there and when you have government that is not prioritizing their spending, but rather kind of reckless in spending and borrowing, if you are expecting so much from them you are not likely to get it.

That is just what we are seeing.” On his part, Aghoghovbia stated that so far, with some of the results insurance companies and reinsurers have posted, operators are looking at a positive bottom-line from the market at the end of the year.