If FBNInsurance Limited were a quoted company, investors would have swooped on its shares, and it would have the most attractive valuations among peers.
This is because the insurer has been thriving even amid the dark cloud hovering around the economy, as it continues to record double digit growth in earnings. It ranked first in key performance compared to peer rivals, who are listed..
With an efficient underwriting capacity, improvement in investment returns, and solid capital base, FBNInsurance will continue to remain a cash-cow to FirstBankHolding Plc, its parent company.
The company attributes it success to an excellent management team and board of directors who understand the industry, and a talented workforce.
An efficient asset allocation strategy resulted in robust investment income that added strength to profit, as it invested the free float in investment securities like bonds and equity when yields were favorable.
FBNInsurance’s gross premium income increased by 40.92 percent to N23.12 billion in June 2019, that’s compares to Custodian Investment revenue growth of 40.85 percent; Aiico Insurance (31.74 percent); Nem Insurance Plc (28.25 percent); Wapic Insurance Plc (24.37 percent); AxA Mansard Plc (24.69 percent); Mutual Benefit Assurance Plc, (8.69 percent), Cornerstone Insurance, (8.64 percent); Lasaco Insurance, (11.11 percent), and (22.23 percent).
FBN Insurance said the growth in revenue was driven largely by the retail life insurance business, annuity business and the corporate segment of the general insurance business.
In the entire industry, the company is the most efficient in curtailing cost while growing profit as combined ratio stood at 55.13 percent in June 2019.
That compares with Aiico’ combined ratios of 98 percent; AXA Mansard, (107.31 percent); Wapic, (160.36 percent); Mutual Benefit, (97.44 percent); NEM, (87.70 percent); Lasaco, (115.94 percent); Consolidated Hallmark, (107.67 percent); Law Union and Rock, (127.08 percent); Sovereign Trust Insurance, 75.23 percent, and Linkage, (142.46 percent).
The combined ratio is the sum of an insurance company’s loss ratio and its expense ratio. The industry norm is to achieve a combined ratio of less than 100 percent and the target is to bring it as low as possible;the implication is that a combined ratio of over 100 percent equates to an unprofitable company,
Analysts at Coronation Merchant in a recent report said that FirstBank Insurance is able to create economies of scale for its front and back office operations, as evidenced in a benign expense ratio.
Generally, size economies are evaluated by relating the operating cost (claims and operating expenses) insurers to their output level.
While profits of insurers have been strained by major claims that resulted in huge underwriting losses, First Bank Insurance continues to utilize shareholders resources in generating higher profit.
For instance, it has the strongest return on average equity among companies tracked by BusinessDay, signaling quality of asset.
FBNInsurance’s return on average equity (ROAE) stood at 46.97 percent in June 2019, that compares with Aiico, 40.0 percent; Custodian 25.04 percent; AxA Mansard 13.07 percent; Wapic, 3.07 percent; Mutual Benefit, 27.48 percent; NEM, 24.45 percent; Cornerstone. 8.65 percent; Lasaco, 10.98 percent; Consolidated Hallmark, 10.61 percent; STI, 33.41 percent, and Regency, 11.83 percent.
Insurance companies in Africa’s largest economy are grappling with declining underwriting profit arising from falling rates due to unhealthy competition and craze to get few available business particularly corporate accounts.
Also, high cost of doing business has makes it difficult for operators in the industry to breakeven, while taking a cover is the least of the problem of of an average Nigerian, whose pockets have been squeezed by rising inflation and spiraling utilities charge.
Gross Domestic Product (GP) expanded by 1.94 percent in the second quarter of the year, this compares with 2.10 percent in the second quarter.
Over 50 percent of population of 200 million people lives on $1.92 a day, and inflation rate at 11 percent is higher than the central bank’s target range of 6 percent and 9 percent.
The average combined ratio (CR) of Composite Insurers over the period 2014-18 was 119.1 percent, while Non-Life and Life Insurers have combined ratios of 110.20 percent and 115.40 percent, implying lack of underlying profitability, according to data gathered by Coronation Merchant Bank.
Disappointingly, the country lags emerging markets in insurance penetration, but policy maker is implementing rules to ensure that operators in the industry are well capitalized so that they care take on more risk.
Nigeria’s total 2018 insurance premiums are reported at N400 billion (US$1.1bn) compared with nominal GDP of N129.1trn, thus 0.31% of GDP. In comparison, a country like India with similar US dollar GDP per capita to Nigeria has an insurance industry equivalent to 3.69 percent of its GDP. We examine India’s successful drive for insurance later in this report.
Despite the above monumental challenges, FirstBank Insurance has been magnifying profit.
Net profit after tax increased by 25.50 percent to N3.56 billion in June 2019 from N2.84 billion the previous year, and profit before tax rose by 27.10 percent to N4.30 billion in the period under review from N3.38 billion the previous year.
FBNInsurance is well capitalized to meet the new minimum capital base set by the National Insurance Commission (NAICOM). Its shareholders’ fund of N17.06 billion as at June 2019 is above the benchmark.
Analyst s noted that some of the well capitalized insurers have the capacity to acquire smaller players with short falls of N3 billion and they added that insurers that are unable to raise capital could opt for recapitalization.
“We believe it will be difficult for listed insurers with a shortfall of above N5 billion to raise additional capital from the current weak capital market,” said analysts at Chapel Hill Denham Ltd.
BALA AUGIE
