African Alliance turns profitable on reduced contract liabilities

African Alliance Insurance Plc reported a better than expected results for its latest quarter as the Nigerian Life insurer returned to profitability, thanks to a reduction in changes in contract liabilities.

For the year ended December 2016, African Alliance recorded a profit after tax of N3.02 billion from a loss position of N4.92 billion the previous year.

Six out of the nine analysts polled by BusinessDay had forecast a profit of N3.50 billion.

The return to profitability was underpinned by a 60.64 percent reduction in contract liabilities to N5.14 billion and a 159.25 percent spike in fair value gain on investment properties.

Reduction in contract liabilities also bolstered underwriting performance as the Nigerian insurer recorded underwriting profit of N1.21 billion, an improvement from the N4.95 billion loss recorded last year.

African Alliance is profitable and there are no threats to its going concern status as its combined ratio (CR) of 56.70 percent is lower than the 100 percent global threshold despite mounting claims expenses.

The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium and many insurance companies believe it is the best way to measure the success of an insurer since it does not include investment income, and only includes profit that is earned through efficient management.

African Alliance claims expenses increased by 42.88 percent to N7.26 billion on the back of the devaluation of the Naira by the Central Bank of Nigeria.

Claims ratios moved to 49.48 percent in December 2016 as against 35.77 percent ad at December 2015. This means the insurer paid N49 for every unit of premium collected.

African Alliance and other insurance firms are operating in a tough environment held hostage by illiteracy, poverty, and cultural beliefs that prevent people from taking insurance cover.

In some parts of the country, taking up a life insurance is a taboo because most people see such a package as a premonition of their own death.

The aforementioned impediments are on top of other changes such an economic downturn brought on by a sharp drop in oil price since mid-2014 and a severe dollar shortage and weak regulations by government.

The insurance sector’s Gross premium to GDP ratio of 0.4 percent in 2015 was well below that of South Africa (14.7 percent) and Malaysia (4.8 percent).

Nigeria’s economy contracted by 0.52 percent in 2016 and inflation for the month of June stood at 16.10 percent, according to a recent report by the National Bureau of Statistics (NBS).

Inflation has been above the upper end of the central bank’s target band of 6 percent to 9 percent for two years.

African Alliance felt the pinch of Nigeria’s macroeconomic challenges as gross premium written (GPW) dipped by 4.80 percent to N14.255 billion as at December 2016.

The Nigerian insurer’s operating expenses were flat at N2.39 billion while underwriting expenses dipped by 12.13 percent to N1.06 billion in the period under review.

The Company’s total assets stood at N45.33 billion as at December 2016 while total shareholder’s fund was N5.74 billion the same period.

BALA AUGIE