Standard Alliance swallowed by own expenses

Standard Alliance Insurance Plc’s windfall from sales was swallowed by underwriting and operating expenses, raising concerns about rising combined ratios (CR) as the company recorded a loss to end 2016 financial year.

Spike in the ratio of total underwriting expenses to net premium income, otherwise known as combined ratios (CR) hurt underwriting profit, leading to the year on year loss.

Combined with a high operating expense to premium ratio, a loss was inevitable.

For the year ended December 2016, Standard Alliance posted a loss after tax of N1.34 billion, 100.15 per cent drop from a profit of N887.48 million it recorded the previous year.

Standard Alliance CR increased to 84.51 per cent in 2016 as against 74.94 per cent the previous year.

While the CR is less than the 100 per cent global threshold, the company has to generate more revenue to cover expenses or cut down on costs to bolster profit.

Accumulated losses of N13.87 billion, which is higher than its N4.65 billion shareholder’s funds, means the company has been recording more losses than profits since it commenced business.

The Nigerian insurer’s underwriting profit declined by 77.97 per cent to N271.84 million as a flurry of demand for claims by policy holders dealt a harsh blow on the underwriting performance of insurers in Africa’s most populous nation.

For the first three months through March 2017, underwriting profit of 13 largest insurance companies quoted on the floor of the NSE plunged by 13.68 per cent to N9.10 billion.
Analysts attribute rising incidence of claims to the unprecedented rates caused by the economic recession as evidenced by increased filing on motor insurance which were ignored before now.

Nigeria’s economy entered the first recession in 25 years as output contracted by 0.52 per cent in the first quarter of the year, according to the National Bureau of Statistics (NBS).
Standard Alliance’s gross premium income dipped by 20 per cent to N4.34 billion while net premium income declined by 20.37 per cent  on the back of poor economic conditions.

The company had put an array of strategies in place to consolidate its position in the industry and strengthen the balance for better performance.

Standard Alliance Insurance Plc formally merged with its sister company, Standard Life Assurance, to become one big insurance company, underwriting life and non-life insurance businesses.

Total assets were up by 10.35 per cent to N13.02 billion in the period under review thanks to the acquisition of property, plants and equipment.

The company’s share price has been stuck at 50 kobo in the past 4 years, reflecting investors’ reluctance to buy the equity as recurring losses scare them.

Further analysis of the financial statement shows claims expenses reduced by 16.30 per cent to N1.43 billion while claims ratios moved to 39.28 per cent in December 2016 from 37.41 per cent in 2015.

Underwriting expenses rose 2.24 per cent to N1.67 billion as underwriting expense ratio stood at 45.87 per cent in the period under review from 35.66 per cent in December 2015.

 

BALA AUGIE