Nigeria based Royal Exchange Insurance, a company that offers a wide range of product services, has again grown its top lines despite a challenging and tough environment, as premium income hit N4.12 billion in the first six months of the year, representing an 8.42 percent increase.
Royal Exchange continues to demonstrate that its strategy of offering insurance that includes life, automobile, fire, theft, and special risk, is paying off.
In terms of growth, Royal Exchange is among the fastest growing insurers in Nigeria at a time when many insurers have reduced growth as a result of economic doldrums. In fact, as some have been returning little capital, Royal Exchange continues to grow steadily.
The Nigerian insurer’s premium income increased by 8.42 percent to N4.12 billion in June 2015 compared with N3.80 billion the same period of the corresponding year (HY) 2014. Gross premium income jumped by 2.61 percent to N5.50 billion in June 2015 as against N5.36 billion in June 2014.
Net underwriting income moved by 7 percent to N4.28 billion in the period under review as against N4 billion as at June 2014. Underwriting income was up 2.30 percent to N1.33 billion in June 2015 compared with N1.30 billion last year.
Despite improved premium income, huge costs prevented the company from replicating top line impressive growth to the bottom lines as net income fell by 60.54 percent to N170.24 million in June 2015 compared with N431.42 million the previous year.
Profit before tax increased by 50.35 percent to N314.97 million in the period under review as against N634.44 million as at June.
BusinessDay’s calculations shows Royal Exchange is less aggressive about paying claims to policy holders as the company’s claims ratio was 33.31 percent while expenses ratio was 72.18 percent. The high expense ratio means the Nigerian insurer is spending more money in running its operations than paying claims to policy holders.
Industry players say in the United States, claims ratios are between 90 percent and 95 percent, which means for every $100 generated in premium, consumers get $95.
Royal Exchange’s operating expenses increased by 1.19 percent to N1.57 billion in the period under review compared with N1.54 billion last year. Underwriting expenses moved by 9.29 percent to N2.94 billion in June as against N2.69 billion in June 2014.
Total assets fell by 12.91 percent to N22.65 billion in June 2015 as against N26.01 billion last year. Shareholder’s fund increased by 1.90 percent to N9.11 billion in June 2015 compared with N8.94 billion in June 2014.
There are positive prognosis for the sector as AM Best said in a recent report that the country’s industry is expected to grow at 10 percent annually over the next five years, following a favourable demographic structure, even as the economy contends with fiscal and structural weaknesses.
Analysts at AM Best say the young and growing population of Nigeria continues to present a huge potential for the growth of the underpenetrated insurance industry, with annual nominal growth rates of up to 10 percent expected for the coming five years.
It however observed that the economy remains subject to fiscal and structural weaknesses, including the country’s dependence on oil revenues, high levels of corruption and subsequent distrust in the insurance industry.
These factors, it observed, restrict the development of the insurance sector, given the high poverty levels and persistent inequality between the various demographics that continue to be ignored.
Growth of Nigeria’s insurance industry and increased competition from international participants will continue to be important to the health and development of the insurance sector, although companies need to stay focused on the economic and regulatory environment, A.M Best said.
Royal exchange share price closed at N0.50 on the floor of the exchange while market capitalization was N2.57 billion.
BALA AUGIE
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