Mutual Benefit Assurance Plc has turned the corner by recording strong underwriting profit as insurers in Africa’s most populous nation continue to grapple with a weak naira, fall in oil price and dollar shortages.
For the first six months through June 2016, Mutual Benefit recorded an underwriting profit of N2.90 billion, which means the company’s underwriting capacity is efficient.
With a combined ratio (CR) less than the 100 percent threshold, it means the Nigerian insurer is profitable and its profit is above the cost of capital.
Mutual Assurance’s CR increased to 49.10 percent in June 2016 as against 43.61 percent as at June 2015.
Combined ratios are the additions of claims expenses and underwriting expenses.
Despite the impressive performance of Mutual Benefit in the period under review, it however operates in an environment beset by macroeconomic economic challenges undermining the growth of companies.
The adoption of a flexible exchange rate regime by the Central Bank of Nigeria (CBN) which saw the naira lose a third of its value, weakened insurers’ financial strengths and competences to handle large businesses.
According to the chairman of Nigeria Insurance Association (NIA) Eddie Efekoha, “In 2015, the N2 billion minimum capital base for life underwriting firms was the equivalent of $10.05 million, whereas in 2016, it has come down to $6.45 million.
“Non-life insurance minimum capital of N3 billion in 2015 was equivalent to $15.07 million, whilst in 2016, it came down to $9,67 million. Composite insurance firms with N5 billion minimum capital in 2015, or $25.12 million was drastically reduced to $16.12 million in 2016. While Reinsurance firms with N10 billion minimum capitals in 2015, or $50.25 million, but came down to $32.22 million in 2016.
The naira lost N3 at the Bureau De Change segment, to close at N420 against the dollar. This represents 0.71 percent fall compared to N417/$ the previous day.
At the interbank spot market, the local currency fell slightly against the greenback by N0.60k or 0.20 to close at N306.93k.
The dollar scarcity caused by the currency peg introduced by the apex bank in order to stabilise the crippled economic activities at the ports, and this had negative effects on insurers as they lost revenue they would have earned from cargo insurance.
As a result of the aforementioned challenges, Mutual Benefit’s net premium income reduced by 5.28 percent to N5.56 billion, while gross premium income was down by 23.57 percent to N6.45 billion in the period under review.
Further analysis of the financial statement of the Nigerian insurer shows benefits and claims reduced by 10 percent to N1.45 billion in June 2016 from N1.61 billion as at June 2015.
Underwriting expenses were up 33.82 percent to N1.27 percent as against N949.32 million the previous year.
Industry players bemoan the abysmally poor insurance contribution to the country’s GDP and they suggest way of improving on premium penetration.
“If insurance penetration is the ratio between insurance premiums written and gross domestic product, then let us collaborate to grow these penetration ratios in order to bring them very close to expected values,” Akin Ogunbiyi, group managing director of Mutual Benefit Assurance said.
BALA AUGIE
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