Deteriorating rates and rising combined ratios have prevented insurers from turning each Naira realized in revenue into higher profit as experts call for a mergers and acquisition that will help unlock potentials in the industry.
Analysis of the 2018 audited financial statement of the largest insurers and reinsurers shows aggregate net income reduced by 22.18 percent to N31.15 billion from N40.03 billion a year ago.
Combined average net profit margin fell to 9.51 percent in December 2018 from 22.03 percent in the period under review despite a 13.31 percent uptick in cumulative premium income to N261.11 billion.
Analysts are of the view that the disparities in rates insurers charge corporates are undermining revenue growth whilst the cost of doing business is increasingly ballooning operating expenses.
“Corporate clients are always looking for a bargain, that is, they want lower rates as the industry is constrained or compelled to take those transaction,” said Owolabi Salami, Executive Director of Allianze Insurance Plc.
“Meanwhile cost of doing business is going up. We incur car, rent AND electricity expenses. We increased staff salaries by between 27 percent and 28 percent,” said Salami.
The federal government have said that a minimum of $3 trillion investment would be needed if the country is to bridge the infrastructure gap in the next 30 years.
Companies rely on diesel oil-which is very expensive- to run factories and offices across the country as power from the national grid remains unreliably unstable.
Growth in Nigeria’s fragile economy slowed to 2.01 percent in the first quarter as the country’s dominant oil sector shrank, according to the latest report by the National Bureau of Statistics
Insurers have seen cumulative operating expenses increase by 34.73 percent in December 2018 from N48.62 billion the previous year.
However, average return on equity (ROE) increased to 15.40 percent in the period under review as against 13.45 percent as at December 2017 while shareholders’ fund fell by 21.40 percent to N239.31 billion as at December 2017.
A breakdown of the figures shows Leadway Assurance Limited, the largest insurer by premium and asset, recorded a 56.45 percent drop in profit after tax to N6.02 billion in the period under review while net profit margins fell to 8.41 percent in December 2018 from 19.81 percent a year ago despite a favourable underwriting performance.
Zenith Bank Insurance Plc’s net profit margin dipped to 33.46 percent in the period under review as against 44.93 billion a year ago as net profit reduced by 23 percent to N2.79 billion as at December 2018.
NEM Insurance Plc’s net margin fell by 26.61 percent to N2.03 billion in December 2018 from N2.77 billion the previous year while net profit margin fell to 19.04 percent in the period under review from 28.31 percent the previous year.
AxA Mansard Insurance Plc’s profit fell by 7.20 percent to N2.48 billion as at December 2018 while net profit margin reduced to 12.60 percent in December 2018 from 19.40 percent the previous year.
Wapic Insurance Plc’s net profit dipped by 77.05 percent to N351.19 million in December 2018 from N1.53 billion; net profit margin fell to 5.18 percent in December 2018 from 27.08 percent the previous year.
Linkage Assurance posted a loss after tax of N290.11 million to end 2018 financial year as net profit margin stood at (8.34) percent in the period under review from 1.01 percent as December 2017.
Veritas Kapital Assurance posted a loss after tax of N695.25 million in the period under review from N700.64 million as at December 2017.
However, some insurers bucked the trend as they recorded an uptick in profit and margins amid a tough and unpredictable macroeconomic environment.
FirstBank Insurance Limited saw profit after tax increase by 61.83 percent to N5.94 billion in December 2018 from N3.67 billion the previous year while net margins increased to 21.30 percent in December 2018 from 18.35 percent as at December 2017.
Aiico Insurance Plc’s net income rose surged by 145.58 percent to N3.15 billion in the period under review as against N1.28 billion the previous year. Net profit margin moved to 9.89 percent in December 2018 as against 4.59 percent as at December 2018.
Nigeria, with a population of 180 million, has an insurance penetration of 0.30 percent.
That compares with South Africa (14.7 percent), Kenya (2.8 percent), Angola (0.8%) and Egypt (0.6%). Similarly, the sector’s insurance density (a measure of industry gross premium per capita) is still one of the lowest when compared to peers – South Africa ($762.5), Egypt ($22.8), Kenya ($40.5) Angola ($30.5) and Nigeria ($6.2).
Moronfola Monsuru – Actuarial Analyst – Wapic Insurance Plc, said that that insurers should do more of retail business because it is more profitable and reduces risk. “You tend to retain more when you do retail because you cede less.
Salami said there has to be an aggressive merger and acquisition scheme in the industry because they are too many firms with a weak capital base that hinder them from taking on more risk.
The regulator has increased the capital bases of firms, and the new policy is expected to spur more mergers and acquisition, but big players will have to cough up cash to embark on such an exercise.
The minimum capital base for reinsurance companies has been increased from N10 billion ($27.7 million) to N20 billion ($55.5 million), and from N3 billion ($8.3 million) to N10 billion ($27.7 million) for general insurance.
Additionally, the minimum capital base for life insurance companies has been raised from N2 billion ($5.5 million) to N8 billion ($22.2 million), and for composite insurance from N5 billion ($13.9 million) to N18 billion ($49.9 million).
Insurers will have to carry out cost control exercise that will help them trim cost and bolster profit margins. They can optimize operations by acquiring latest technology like most banks are doing.
Another way to bolster margins is by investing their floats in government securities like treasury bills and bonds or invest in real estate to earn income from rents.
BALA AUGIE
