Investors who have put their money into Niger Insurance, Guinea Insurance, and Royal Exchange Insurance may have to wait for a long time before they are rewarded in form dividend payment.
This is because these ventures have been recording recurring loses that has left a hole in their balance sheet and the law only allows payment of dividend from profit.
Across the globe, regulators always pay attention to the capital position of insurance companies because it is essential to ensure insurers hold “robust level” of reserves to protect policy holders and absorb losses.
The Companies 2013 states that a company could declare or pay dividend out of its profits for the current year or profits for any previous full years (FYS).
However, before declaring any dividends, the companies are required to make following adjustments to the profits which would be available for distribution as dividends: a. Make a provision for depreciation (in accordance with Schedule II to the 2013 Act)b. Setoff carried over previous losses and depreciation not provided in the previous year(s) against its profits for the current year.
Niger Insurance has a negative retained earnings of N2.78 billion as at December 2019, same as 2018’s negative figure of N1.36 billion. As a result of a sharp drop in premium income and rising management expenses, the insurer posted a loss after tax of N1.65 billion in the period under review.
Niger insurance is beleaguered by spiraling claims/operating expenses, resulting in deteriorating underwriting performance.
And insufficient liquidity that hinders it from investing in government securities to earn sizable investment income to augment battered bottom line (profit) exposes it to the vagaries of macroeconomic shocks. Interestingly, Niger Insurance incurred management expense of N2.53 billion as at December 2019, a figure that is 1.37 times net premium income of N1.43 billion.
In short, operating expenses ratio increased to 137.15 in December 2019 from 49.05 percent the previous, thanks to a 54.93 percent reduction in net premium income to N1.84 billion.
Guinea Insurance has negative retained or accumulated losses of N1.75 billion in its balance sheet as at December 2019, while it posted a loss after of N795.04 million.
The insurer is reeling from a N645 million loss on disposal of assets. It acquired four properties in choice areas in Lagos for a combined amount of N1.82 billion and disposed them for N1.10 billion.
Royal Exchange also has negative retained earnings of N3.19 billion as at December 2019 and a loss after tax of N215.13 million.
At 1.176 percent as at December 2019, the insurer’s combined ratio has exceeded the 100 percent bench mark; what this means is that it is expending more on claims, underwriting and operating expenses than it is earnings in premium income.
While Sovereign Trust Insurance has negative retained earnings of N1.18 billion as at December 2019, it recorded a profit after tax of N503.38 million.
There more companies that have accumulated losses in their books but they have not released financial statement in the last three years.
That’s slap on regulator and cast a pall over its ability to coordinate an industry that contributes less than one percent to the country’s GDP.
A strong capital buffers ensures insurers have the financial ammunition to surmount economic headwinds and meet obligations to policy holders while delivering higher returns to shareholders.
Analysts have warned that insurers’ capital position isn’t strong enough to support bumper dividend payment as they need to conserve cash in order to meet regulator’s new minimum capital requirement.
The European Union has advised insurers and reinsurers to postponed dividends, buybacks, and bonuses as the coronavirus has led to lockdowns of economies and a rising number of insurance claims as travel and events are cancelled and business disrupted.
