While most insurance companies are struggling with a harsh regulatory and operating environment, Wapic Insurance Nigeria Plc is thriving, as evidenced in an efficient underwriting capacity.
Data gleaned from the nine months 2019 financial statement of Wapic shows it spends less on operating expenses to generate each unit of premium income, which means it creates economies of scale for its front and back office operations.
The rapidity of growth in premium income in the last six years validates the launch of market penetrating products by management and board of directors.
The management and board of directors of Wapic are ingenious, as they take advantage of a high yield environment to invest the float in bonds and equities market, generating investment income that adds impetus to profit.
INCREASE IN NET PREMIUM AS RESULT OF INNOVATIVE PRODUCTS
For the first nine month through September 2019, the company’s gross premium written increased by 25.56 percent to N12.67 billion from N10.09 billion in the corresponding period of 2018 as a result of the launch of market penetrating product that allures customers across the country.
A breakdown of gross premium written shows Motor segment surged by 139.83 percent to N1.71 billion while the company relised N1.065 billion from Group Life business.
Gross premium income (GPI) spiked by 38.86 percent to N11.97 billion in September 2019 as against N8.62 billion the previous year while reinsurance expenses surged by 102.53 percent to N6.13 billion in the period under review.
IMPROVED UNDERWRITING PROFIT VALIDATES EFFICIENCY RATIO
Wapic Insurance’s underwriting profit was up 78.83 percent to N2.45 billion from N1.37 billion the previous year; this shows the company has an appropriate mix of claims and expenses that minimises overall cost.
The insurer has been honoring its obligations to policy holders even amid a high inflationary environment and macroeconomic uncertainties, spending less on claims expenses to generate each unit of revenue.
Total net claims stood at N2.20 billion in the period under review, this represents a 35.05 reduction from N3.11 billion incurred the previous year.
Claims ratio fell to 39.49 percent in September 2019 from 57.07 percent the previous year; this means for every N100 generated in net premium income, it expends N44 on marketing, administrative and distribution expenses that relates to claims in the period under review.
However, underwriting expenses were up 22.38 percent to N2.46 billion in the period under review from N2.01 billion the previous year while underwriting expense ratio increased to 44.02 percent in September 2019 from 36.82 percent the previous year.
Total operating expenses were down 7.71 percent to N3.23 billion in the period under review from N3.50 billion the previous year.
Wapic is spending less on management and sundry expenses to generate each unit of revenue as total operating expense ratio fell to 57.52 percemt in September 2019 from 64.17 percent the previous year amid ineficinecy in power supplies and transportation that undermine businesses across the country.
A lower cost shows the company is able to create economies of scale for their front and back office, as it continues to turn each Naira invested in sales into higher profit.
Read also: Wapic Insurance profit before tax up 129% in Q3
Profit surges on lower costs, increased revenue
Profit after tax (PAT) surged by 238.85 percent to N972.89 million in September 2019, from N287.28 million the previous year while profit after tax spiked by 127.36 percent to N1.08 billion as at September 2019 from N475.44 billion the previous year.
Wapic is efficient, as net margin spiked to 17.01 percent in the period under review from 5.25 percent the previous year.
Financial assets were up 5.10 percent to N8.24 billion in the period under review from N7.84 billion the previous year.
The growth in financial asset is largely driven by fixed income securities of N1.98 billion in the period under review and corporate Eurobond of N1.32 billion respectively.
Investment in associates increased by 5.59 percent to N9.25 billion in the period under review as against N8.76 billion as at September 2018.
While Wapic Insurance is recording double digit growth in earnings, it operates in a tough business environment, which is why the industry lags its peers in the frontier and emerging markets.
Nigeria’s total 2018 insurance premiums are reported at N400 billion ($1.1 billion) compared with nominal GDP of N129.1 trillion , thus 0.31 percent of GDP. In comparison, a country like India with similar US dollar GDP per capita to Nigeria has an insurance industry equivalent to 3.69 percent of its GDP.
The economy has been growing sluggishly since the country existed recession in 2016, as GDP expanded by 1.94 percent in the second quarter (Q2), lower than the 2.10 pecent and 2.34 percent expansion in the first quarter (Q1) and fourth quarter (Q4) of 2018.
Unemployment rate is at an all time high of 23 percent while over 50 percent of a population of 200 million people live on less than $1.98 a day, signaling that taking a cover is the least of the worries of Nigerians. They have to insure their stomach, first.
Just like many businesses, insurers incur huge costs on diesel oil to power generators at head office and branches across the country as electricity from the national grid is unreliably inconsistent. That adds to overhead costs, a monster that erodes profitability.
In order to strengthen the insurance industry so that it competes with its peer across the globe, the National Insurance Commission (NAICOM) has jerked up the minimum capital requirement of companies.
The aim of the new rules is to ensure that insurers have a solid capital base that will enable them take on more risk,grow premium and magnify shareholders earnings.
In the new capital base, life insurance companies will now have a minim paid-up capital of N8bn from its previous N2bn, General Insurance companies will now have to recapitalize to N10bn from N3bn, while Composite Insurance companies will now need N18bn to underwrite businesses from the previous N5bn minimum capital.
The new capital base requirement also affected reinsurance companies who will now have to raise their minimum paid-up capital from N10bn to N20bn if they must remain in business.
