Cornerstone Insurance Plc: Reduction in claims expense underpins underwriting profit

Cornerstone Insurance Plc has recorded marked improvement is underwriting capacity, thanks to copious investment in distribution channels.

The company just released its June 30, 2019, financial statement that showed it posted an underwriting profit of N1.06 billion; this represents a 51.82 per cent increase from N698.25 million as at June 2018.

The chart shows underwriting profit was at an all time low of N80.17 million in the second quarter of 2017, a recessionary period that paralyzed business activities across the country. A lot of insurers suffered huge underwriting losses as claims expenses spiked on the back of spiralling inflation and foreign exchange crises.

While operators in the industry are struggling with rising expenses, Cornerstone’s cost control strategy is adding impetus to the bottom line (profit). What this means is that the company is a position to reward shareholders in the form of dividend payment.

It paid total claims of N1.422 billion in June 2019, a 20.20 per cent reduction from N1.78 billion recorded in 2017, and it also spent less on wages and advertisement expenses in generating each unit of revenue (premium income as loss ratio fell to 43 per cent in June 2019 from 66.90 per cent the previous year. Loss ratio hit an all-time high of 80 per cent in 2017.

Cornerstone innovative products are contributing to its top line (revenue) as gross premium income spiked by 11.12 per cent to N6.06 billion in the period under review from N5.44 billion as at June 2018.

A breakdown of revenue showed the company made N2.51 billion from Life Business, while the General Business generated N3.82 billion.

Drilling down the figures revealed premium income from oil and gas stood at N1.23 billion; General Accident, N1.02 billion; Motors  N792.93 million, and Fire N637.30 million.

Cornerstone has turned each Naira invested in sales into higher profit as net margins, a measure of profitability and efficiency, increased to 17.19 per cent in the period under review from 15.37 per cent the previous year.

Profit after tax followed the same growth trajectory as it jumped by 9.90 per cent to N501.76 million in the period under review, a marked improvement from a loss of N866.16 million recorded in 2017.

The Nigerian insurer is making use of use of its insurance float to underpin profit as it generates N551.12 million in investment income.

Not all the money an insurance company accumulates are paid out immediately. Instead, they receive premium, invest the money, and then pay out claims as needed at some future date.

Therefore, the insurance float represents the available reserve or the amount of funds available for investment once the insurer has collected the premiums, but not yet obligated to pay out in claims.

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This means the float is invested in stocks and bonds to generate returns that compensate for weak underwriting profit.

In his 2002 letter to shareholders, Warren Buffet, One of the richest men in the world, and Chairman Berkshire Hathaway said that float is the money we hold but don’t own.

“In insurance operations, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years,” said Buffet.

To understand what is going on, let’s return to a simple model. The moment policyholders pay insurers premium for indemnifying risk, that money has become a loan to these companies because not all customers will be involved in accidents or be hit by fire or flood at the same time.

Cornerstone insurance operates in a tough and unpredictable macroeconomic environment, which is why the industry’s contribution to the country’s economy is abysmally poor.

Despite a population of 200 million people and an economy of $492 million, the country’s insurance penetration is o.31 per cent and a density of $6.0 of capital
That is abysmally poor when compared to South Africa’s penetration rate of 12.89 per cent and density of $840; Namibia, ($390/7.25 per cent); Morocco ($127/3.88 per cent), and India ($74/$3.69).

Penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.

Insurance density, on the other hand, is the ratio of insurance premium to the total population.

The way to unlock the opportunities in the Nigerian insurance industry is to accelerate micro-insurance take up, a policy that has become a revolution in Asian countries and neighbouring West Africa nation, Ghana.

The National Insurance Commission (NAICOM) has jerked up the minimum capital of insurers, as it seeks to strengthen their capital bases.

The revised paid-up capital requires life Insurance business operators to raise its capital from N2 billion to N8 billion; General business from N3 billion to N10 billion, while that of Composite business has been jerked up from N5 billion to N18 billion.

For Reinsurance business, the revised minimum paid-up share capital has also been reviewed upward from N10 billion to N20 billion.

About Cornerstone Insurance
Cornerstone Insurance Plc was incorporated on 26th July 1991 as a private limited liability company and became a Public Limited Liability, quoted on the Nigerian Stock Exchange in 1997. Our organization was established to conduct Insurance business in a professional, ethical and customer-focused manner and has remained committed to these values over the years.

The Company is licensed and re-certified by the National Insurance Commission (NAICOM) to do both General and Life businesses and the classes of Insurance business we currently undertake include the following:
Motor Vehicle, Aviation, Marine, Engineering All Risks, Asset Protection, Liability to Third Party, Oil & Gas, Group Life, Credit Life, Mortgage Protection, Term Assurance, Wealth Creation Products and Takaful (Islamic Insurance).

The company’s Authorized Share Capital and Market Capitalization is N7.5 billion and N5 billion respectively, while the Shareholders’ Funds is N6.2 billion as of December 2017. The total assets of the company are in excess of N20.80 billion.

At Cornerstone, we remain committed to both our core values of Integrity, Empathy, Professionalism, Innovation, and Team Spirit and our continued mission of delivering value beyond expectations through needs-based products and quality service.