Insurance companies quoted on the floor of the Nigerian bourse are hard hit by capital controls imposed by the Central Bank of Nigeria (CBN) as premium income falters on the back of slowing manufacturing and marine activities.
The once busiest ports in Africa’s biggest economy have become conspicuously quiet, which means businesses are increasingly scaling back on activities to the detriment of revenue that would be earned by insurers of goods in transit.
The audited financial statement of 10 insurance companies that have released full year results showed cumulative net premium income fell by 4.67 percent to N61.65 billion from N64.67 billion as at December 2014. Cumulative Gross premium written remained flat at N88 billion.
Aiico, one of the largest insurers suffered the deepest dip as premium income reduced by 58.39 percent N6.74 billion to end the 2015 financial year.
“The foreign exchange policy is also affecting the marine portfolio, as a lot of people are unable to buy imported goods,’’ said Moronfola Monsuru Olaseni, actauarist at Wapic Insurance, in an email note to BusinessDay. ’
“The reduced volumes on economic activities have impacted negatively on insurance in goods in transit. These provide cover from the point of loading to destination,’’ said Olaseni.
To curb a continued fall in foreign reserves caused by a drop in oil price by 70 percent to $40 per barrel, Gowin Emiefele, the governor of the apex bank, introduced restrictions that have hindered business from accessing dollars to import raw materials.
Since the policy was introduced, the economy of Africa most populous nation has been ebbing and receding, signalling near recession.
Economic growth slowed to 2.8 percent in 2015, the lowest in 16 years. The International Monetary Fund forecasts a further slowdown in 2016. Inflation rate increased to 12.80 percent in March from 11.40 percent in February, according to NBS data.
Analysts say the weak consumer discretionary spending caused by the rise in price of food stuff and rising transportation costs has discouraged many people from taking insurance cover.
The squeeze on consumers wallet means they will have to prioritize their spending, said Afolabi Lawal, Finance Controller at Aiico Insurance Plc.
“Since inflation has eaten deep into their pockets, they will be left with insurance that are compulsory, ’’said Lawal.
Market penetration, the commonly used index in measuring the performance of insurance in an economy, which is the ratio of total insurance premiums to the Gross Domestic Product, is less than 1 percent of Gross Domestic Product (GPD).
However, there is light at the end of the tunnel for the ten insurance companies, as they maintained a combined underwriting profit of N9.12 billion in December 2015.
This is also influenced by their underwriting discipline, which seeks to manage exposure to loss through favourable risk selection and diversification of their management of claims.
“It shows that insurers are practicing effective risk management in the selection of their risks and they are also aggressive about investment returns,” said Muritala Ahmed, an analyst at FBN Insurance, in a telephone interview.
“The few businesses they have in their books are good or profitable business. They are no longer writing volumes. They manage how they utilise their funds,” said Ahmed.
The quoted firms had a combined ratio (CR) of 94.25 percent in December 2015 from 81.25 percent the previous year.
A CR lower than 100 percent is a sign of strong financial strength, amid a falling premium income.
The combined ratio is the combination of claims expenses, underwriting expenses and acquisition costs.
“ The increment in combined ratio is expected, as the industry adopted good ethical practices. The 2015 combined ratio depicts a true position of the industry, and should improve subsequently,’’ said Olaseni.
A scheme of mergers and acquisitions is seen as unlocking the opportunities in the industry. This is because of its huge success in the banking sector.
BALA AUGIE
