Wapic insurance positions for sector’s upside

Wapic Insurance, one of Nigeria’s five leading insurers with a focus on general and life cover, is quietly positioning itself for the huge upside to come in the sector, as Fitch Ratings yesterday re-iterated its view that the fundamentals of the country’s insurance industry was intact.

Wapic, with a market capitalisation of N6.69 billion, grew its Gross Written Premium by 40 percent year on year to N5.2 billion in 2014, even as its board of directors in a confidence building measure, deliberately moved to pay off outstanding legacy claims of N2.1 billion for the group.

The firm outperformed the sector as a whole, which recorded a 15 percent premium growth in 2014, mostly on the back of compulsory motor vehicle insurance.

“The Nigerian insurance industry will continue to expand, despite recent economic headwinds and significant structural challenges,” Fitch Ratings said in a new report on the sector released Oct. 19.

“A number of leading insurers have maintained strong premium and balance sheet growth over the past three years.”

Debt free, with shareholder funds of N14.8 billion and total assets of N23.5 billion, Wapic Insurance is one of such firms.

Wapic’s combined ratio (a measure of profitability that comprises claims ratio, underwriting expense ratio and operating expense ratio) for the period ended June 30, 2015 stood at 96 percent for “the Group” (comprising Wapic Life Assurance Limited and Wapic Insurance Ghana Limited), compared to  113 percent recorded by the Group in the 2014 financial year.

The ratio which is below 100 percent (and within industry accepted ranges) indicates that the company is making underwriting profit, while a ratio above 100 percent would have meant that it was paying out more money in claims than it is receiving from premiums.

Wapic’s claims ratio increased from 19 percent as at June 2014 to 31 percent in June 2015 as a result of the Groups prompt claims payment.

Analysts say the sector’s future growth will be driven by the anticipated economic expansion in coming years, a significantly untapped insurance market and growth in the emerging middle class.

Nigeria’s economy, the continent’s biggest, may expand by 3.8 percent this year, according to International Monetary Fund (IMF) estimates.

The value of insurance contracts should rise to about N1 trillion ($6.4 billion) in 2017, about 3 percent of gross domestic product, from N300 billion now, or less than 1 percent of GDP, the former Insurance Commissioner, Fola Daniel, said last year.

Compulsory motor-vehicle insurance, which makes up most contracts now, should remain at about 10 percent by 2017, while life insurance should constitute 7 percent, general business insurance 3 percent and petroleum companies’ insurance 2.5 percent, he said.

Favourable factors supporting the long term development of the Nigerian insurance industry include robust demographic fundamentals, investor interest and low insurance penetration, according to Fitch.

Wapic has launched new insurance products including a new MOOV motor insurance, group life and occupier’s liability to tap that opportunity.

“The growth experienced in Wapic’s operating expense is an indication of the company’s strategic expenditure to position itself within the top tier of the industry, in line with our corporate objectives,” the firm said in a statement to BusinessDay.

The Group recorded an underwriting profit of N858.64 million as at June 2014 and N831.52 million in June 2015, a 3 percent dip, attributable to the increase in the firms claims.

The company’s return on equity (ROE) was 0.46 percent for the period ended 30th June 2015.

“We see the sector with potential for strong growth in the future and being extremely profitable,” Matthew Pirnie, Standard and Poor’s director of Financial Services Ratings, told BusinessDay in a recent interview.

Wapic Insurance Plc recently received an international rating of B- on financial strength and an issuer credit rating of bb- by AM Best, a world renowned global credit rating agency headquartered in the USA, and is only the third Nigerian insurer to achieve this.

PATRICK ATUANYA