NEM Insurance’s profit drops on reinsurance expenses

NEM Insurance Plc has been hard hit by rising reinsurance expenses that led to a drop in third quarter profit as the Nigerian insurer operates in low penetration environment.

For the first three months through March 2017, NEM’s net income declined by 73.61 per cent to N604.56 million compared with N2.29 billion as at March 2016.

The sharp drop at the top-lines (profit) was due to a 1016.61 per cent decline in reinsurance expenses to N911.70 million and an 82.63 per cent reduction in unearned income to N2.56 billion despite an uptick in written gross premium.

Reinsurance expenses as proportion of written gross premium rose to 49.23 per cent in March 2017 from 34.91 per cent as at March 2016.

NEM’s underwriting profit dipped by 51.85 per cent to N1.56 billion in the period under review as against N3.24 billion as at March 2016.

The Nigerian insurer and others operate in a tough operating environment as weak regulatory framework, low awareness and public apathy towards insurance continue to undermine growth.

In addition to the aforementioned challenges, firms are faced with rising inflation, a weak naira and an economic downturn.

Nigeria’s economy declined by 0.52 per cent in 2016, the country’s first recession in 25 years, according to data from the National Bureau of Statistics (NBS).

On the whole, the Nigerian insurance market remains under-penetrated largely due to the same challenges stated above. 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).

Insurance regulator, National Insurance Commission (NAICOM), has tried to address this through its Market Development Restructuring Initiative (MDRI), with ambitious plans to increase both gross written premiums and premium to GDP ratio to N1.0 trillion ($3.1billion) and 4 per cent respectively.

Further analysis of the financial statement of NEM insurance shows gross premium written (GPW) increased by 29.17 per cent to N5.18 billion in March 2017, while net premium income dipped by 32.41 per cent to N1.71 billion.

NEM paid a total of N439.90 million in March 2017, which represents a 66.60 per cent decline from last year’s figure of N1.31 billion the previous year.

The Nigerian insurer underwriting expenses were up 43.15 per cent to N885.63 million in the period under review from N618.66 million as at March 2016.

Experts say such under-performance and lack of market penetrating products explain why stock price hasn’t risen above N2 in the last five years.

In other words consolidation could help shore up capital and give the insurer the leeway to take on more risk.

 

BALA AUGIE