The focus and market penetration strategy of African Alliance, one of the fastest growing insurance companies in Africa largest economy has paid off as the insurer recorded a double digit growth in premium income.
This stellar performance amid economic lethargy and unpredictable macro environment means the company’s growth strategy has been validated. It also shows the insurer has magnified shareholder’s holdings, the surge at the top lines.
For the first six months through June 2014, the company’s net premium income (NPI) increased by 72 percent to N5 billion from N3 billion the same period of the corresponding year (H1) 2013. Gross premium income followed the same growth trajectory as it grew by 79 percent to N3.3 billion in June 2014 as against N2.9 billion last year.
The first life insurance company in the country attributed the impressive results to the multiplicity of its market penetrating products which was developed in conjunction with its parent company Munich of Germany, one biggest insurance firm in the world.
“We have good background to start with and the Germans are known for technicalities. All our products, over 20 types of products we have here are designed with the help of Munich of Germany,” said Alphonse Okpor, Managing Director and Chief Executive Officer of the company, in a recent interview with BusinessDay.
“We have that technical corporation with them that anything we want to do we sit down together and design products that are affordable by Nigerians. We design products to suit people’s circumstances, “said Okpor.
Despite African Alliance impressive results, analysts say high rate of unemployment, receding consumer spending due to rising inflation and cultural beliefs is undermining regulators efforts in deepening premium penetration in Africa largest oil producer.
Nigeria’s consumer inflation was at 9.4 percent year-on-year in September, up 0.1 percentage points from August, and staying above the central bank’s target upper limit, the national bureau of statistics said on its website.
The economic doldrums have left the people with less money to take up insurance policies as the large chunk of monthly income are spent on feeding. This setback explains why the country, despite its 170 million population still lags behind some of its Sub Sahara peers in premium penetration.
Nigeria’s insurance less than one percent contribution to an economy of $510 billion is abysmally poor when compared with more than 15 percent contribution of South Africa’s to its GDP, making the second largest economy the second highest insurance penetration in the world according to PWC.
Kenya’s insurance market generated $1.5 billion of insurance premiums in 2013, contributing 3.4 percent to its $53 billion GDP.
At $72.4 billion, insurance premiums across Africa accounted for a little more than 3 percent of the world market, which in 2013 recorded premium income of more than $2 trillion.
“Premium penetration is low due to the lack of knowledge. The level of awareness of insurance in both South Africa and Kenya are much higher than that of Nigeria,” said an Actuarist, who doesn’t want his name mentioned because of what he perceived as the sensitivity of the matter.
“There is a perception in Nigeria that insurance companies are fraudulent and will not pay up when there is a claim. Also, the fact that in Nigeria we are relatively poor. People will not spend money on insurance when they don’t have money to eat food. They will rather spend the money on food or commodities than to spend it on insurance, said the actuarist.
Further analysis of the financial statement of African Alliance has a strong financial heath as combined ratio stood at 44 percent in the period under review, from 61.90 percent recorded last year.
The combined ratio is the combination of expenses ratio and claims ratio.
The lower the ratio, the more profitable the insurance company and vice versa. If the loss ratio is above one or 100 percent, the insurance company is unprofitable and may be in poor financial health because it is paying out more claims than it is receiving premiums.
The company’s underwriting profit was down 66 percent to N460.34 million in June 2014 as against N1.34 billion due to a 770. 18 surge in changes in contract liabilities to N3.17 billion in the review period. Net income dropped by 76.47 percent to N190.71 million in June 2014 compared with N810.72 million last year.
Operating expenses were up by 45.13 percent to N1.3 billion in June 2014 as against N923.3 million last year. The company is spending less to generate each unit of premium as operating expenses ratio fell to 27.60 percent in June 2014 as against 32.11 percent last year.
African Alliance total assets increased by 21.3 percent to N19.5 billion in June 2014 compared with N16.1 billion last year. Shareholder’s fund stood at N4.8 billion. Total underwriting expenses moved by 51.97 percent to N516.19 million in June 2014 compared with N339.7million.
The company was established by Munich of Germany, the world’s biggest re-insurance company.
African Alliance share price closed at N0.50 on the floor of the exchange while market capitalization was N10.3 billion.
BALA AUGIE
