• Friday, December 01, 2023
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NAICOM intervention pays off as Investment and Allied Assurance plc reverts to profitability

Insurers eye new template for government assets


The company was incorporated in Nigeria on the 4th of October 1968 as Milverton Insurance company Limited under the Companies and Allied Matters 2004 CAP C20 LFN and is domiciled in Nigeria. It changed its name to Investments and Allied Assurance Company Limited on 6th October 1993. On the 12th December 2007 it became a public Limited Company and changed its name to Investments and Allied Assurance Plc.

The principal activities of the company are the underwriting of general insurance business under license from the National Insurance Commission of Nigeria. The principal activities comprise business acquisition, underwriting, claims and investments.

Investment and Allied Assurance Company Plc (1AA) has been in financial turbulence as it continues to record recurring losses from operations which raise substantial doubt about IAA’s ability to continue to exist in the foreseeable future.

This sluggish performance combined with misrepresentation of the 2008 to 2009 financial reports by the management of IAA, led to the takeover of the insurance company by Nigeria Insurance Commission (NAICOM), a body that regulates Insurance business in the country.

The uncertainties inherent in the intervention process of the regulatory body and IAA’s recurring losses from operations raise substantial doubt about IAA’s ability to continue as a going concern.

IAA reverts to profitability on NAICOM intervention

The intervention by NAICOM is yielding fruits as the 2012 audited financial statement showed IAA posting a profit after tax of N192.25 million from N649.90 million losses recorded in the same period of the corresponding period of December 31 (FY) 2011. Also a 277.70 percent increase in reversal of impairment losses and other write backs to N245.32 million was a major driver of growth in bottom line.

The company also reverted to an Underwriting profit of N26.46 million in 2012 compared with a loss of N18.18 million recorded in FY 2011- thanks to a to a write back in total underwriting expenses to N5.79 million in 2012 as against N50.42 million expenses the preceding year.

Operating expenses increased by 15.40 percent to N130.98 million compared with N154.84 million last year. This means the new management of the company should put in place cost cutting measures that will reduce costs to further bolster the profitability position of the Nigeria Insurer.

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Sluggish growth in premium income highlights inefficient underwriting capacity

Despite improvement at the bottom line level, IAA’s underwriting capacity is conspicuously inefficient as its gross premium income (GPI) dipped by 35.83 percent to N20.67 million compared with N32.32 million as at FY 2011. Similarly, gross premium written, shrank by 84.60 percent to N5.84 million in the review period as against N37.92 million the corresponding period of (FY) 2011.

The sluggish growth at the top line level highlights the urgent need for a capital reorganization and reconstruction of the company. This will enable the company tap into the fast growing Nigeria insurance sector that has been transformed tremendously by NAICOM. NAICOM has introduced the no premium No Cover policy to that will further deepen the insurance penetration of Nigeria insurance firms.

Negative Shareholders’ fund, huge liabilities means IAA is insolvent    

The negative shareholders’ fund and huge liabilities of the company means the company is insolvent. Shareholders fund was in negative position of N749.55 million in the review period compared with N941.81 million negative positions it recorded as at December 31 2011- caused by recurring losses that culminated in negative retained earnings of N15.10 million in the review period.

Further putting the Nigeria insurer in a precarious position is a copious liability of N1.11 billion compared with N1.29 billion as at December 2011. Total assets were up slightly by 3.31 percent to N360.45 million as against N348.88 million the same period of the corresponding year (FY) 2011.

Scheme of capital injection and reconstruction to the rescue

In order to salvage the company from imminent collapse, return it to required capital and solvency level, a scheme of capital injection and reconstruction has been approved by the board of directors of IAA.

The recapitalization, which will correct the insolvency position of the company will require a capital injection of N4 billion. This amount will also meet the N3 billion  statutory capital level set for non-life insurance business in view of the negative shareholders fund of about N1 billion.

The objective of a Capital Reduction Scheme is to eliminate the paid up share capital not represented by any asset to create a window for new capital injection. Barring any unforeseen circumstance, it is expected that the recapitalization of the company will be concluded in 2015, according to the company’s 2012 financial statement.