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AIICO Insurance Nigeria Plc’s recurring disappointing performance in the past few quarters due to its inability to grow premium income and curtail costs could stir up a hornet’s nest among shareholders and investors.
The Nigerian insurer has been grappling with deteriorating underwriting performance as spiraling combined ratios (CR) are increasingly eroding profit margins.
Also, the insurer has failed to utilize the resources of its owners in generating higher profit while each Naira invested in revenue is yet to bolster profit.
Analysts say such recurring underperformances calls for urgent strategies such as the introduction of market penetrating products, employment of skilled workforce, and adoption of latest technologies to trim costs.
Perhaps more worrisome is that AIICO Insurance’ total operating expense (sum of total underwriting and management expenses as a percentage of net premium income) is 1.81 times net premium income.
In the common law of torts, res ipsa loquitur is a Latin word that connotes “let the thing speak for itself” but in this case the numbers will validate the first five paragraphs.
For the year ended December 2017, AIICO Insurance recorded an underwriting loss of N4.02 billion from an underwriting profit of N12.44 billion the previous year.
Receding premium income and rising claims expenses are responsible suppressed margins.
Total claims expenses spiked by 58.87 percent to N20.77 billion in December 2017 from N13.09 billion as at December 2016.
Claims ratio otherwise known as loss ratio surged to 118.95 percent in the period under review from 48.57 percent for the year ended December 2016.
A loss ratio of 119 percent, therefore, means AIICO Insurance is in poor financial health and not profitable because it is paying more claims than it receives in revenue.
Expectedly, combined ratios (CR) climbed to 135.65 percent in the period under review from 60.58 percent the previous year.
The combined ratio after policyholder dividends ratio,” is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations.
The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them.
A ratio below 100 percent indicates that the company is making underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums
Investors and shareholders will be bemused that a firm with the largest written premium among insurer quoted on the floor of the bourse is unable to use deploy its resources in generating higher profit.
However, AIICO Insurance could lose that top spot when other firms start releasing financial statement on the website of the NSE.
The tough and unpredictable macroeconomic environment and inability to lunch new market penetrating products undermined the insurer’s revenue.
Gross premium income spiked by 29.02 percent to N21.29 billion in December 2017 as against N30.02 billion as at December 2016.
Net premium incomes were down 34.40 percent to N17.50 billion in the period under review as against N26.68 billion as at December 2016.
AIICO Insurance’s net income slumped by 87.48 percent to N1.28 billion in December 2017 from N10.23 billion in the period under review.
The Nigerian insurer’s net margin fell to 7.38 percent in the period under review from 38.41 percent as at December 2016; raising concerns about its ability add value to shareholders’ wealth.
AIICO Insurance has failed to utilize the resources of its owner in generating higher profit as return on equity (ROE) fell to 11.69 percent in December 2017 from 123.26 percent the previous.
BALA AUGIE
