A flurry of contribution from the oil and gas has catapulted the top lines of Linkage Assurance Plc in the last quarter of 2015 as the Nigerian insurer has formulated strategies to help bolster shareholder’s value.
The combinations of a favorable loss ratio and reduced underwriting expenses means the company is profitable and there are no threats to its going concerns.
Premium incomes are also above the cost of capital, which signals well proved reserves, amid an unpredictable macroeconomic environment.
For the year ended December 2015, Linkage Assurance’s gross premium written (GPW) increased by 23.93 percent to N3.78 billion from N3.05 billion, the previous year.
Gross premium income (GPI) and Net Premium Income (NPI) grew by 17.94 percent and 24.64 percent respectively to N3.68 billion and N2.43 billion in the period under review.
“In 2015 our gross premium written grew by 24% (2014: 14%) to N3.79billion from N3.05billion. The growth was fueled by the increased contribution of Oil and Gas policies to the gross premium written in 2015,” according to Raymond Ihyembe, Chairman of the company in a note attached to the 2015 audited financial statement.
“The underwriting profit from operation was deeply eroded by the high provision for outstanding claims experience in 2015 with approximately 80% increase compared to 2014,” said Ihyemba.
Linkage Assurance combined ratio (CR) of 69 percent is lower than the 100 percent, which explains the company’s underwriting profit of N1.27 billion in the period under review.
As a result of a high claims environment, the Nigerian Insurer’s total net claims expenses spiked by 120.89 percent to N1.22 billion while claims ratio were down to 33 percent in December 2015 from 36 percent the previous year.
Experts say Linkage Assurance may have growth slowed, incur high payout in 2016 as insurance companies were blighted by an economic downturn.
A sharp fall in oil price since mid 2014 and a severe dollar shortage plunge Nigeria to its first recession in 25 years as the economy contracted by 2.2 percent in the third quarter.
A slow growing economy dampens the appetite of consumers for insurance products because their purchasing power will be eroded significantly by spiralling inflation. People will spend the little in their pockets on consumption than buy a product.
In a recessionary environment where firms’ cash flows are dented and expansion plans scaled back, it is expected that insurance premium income or revenues would be lost.
“A slowing down of the economy will necessarily imply a decline in insurance business,” said Funmi Babington-Ashaye, managing director/CEO Risk Analyst Insurance Brokers Ltd.
“For instance, with a shrinking economy, a number of employment opportunities will be lost, contributory pensions by employees will decline, life assurance………….threatened, manufacturing companies, Airlines etc are closing down and hence not renewing their polices,” said Ashaye.
Further analysis of the financial statement of Linkage Assurance shows operating expenses fell by 5.23 percent to N947.23 million while underwriting expenses increased to N1.34 billion.
The 2015 audited financial statement of the Nigerian insurer showed net income rose by 57.61 percent to N512.24 million, from N325 million the previous year.
Linkage Assurance is thinking outside the box as it has launched a number of strategies and product in order to surmount the headwinds caused by a drop in oil price.
The company has developed its retail distribution channels into retail insurance while enhancing product development, market visibility.
“Having birthed the retail marketing team in 2015, we will leverage on the large untapped market space to further enhance our premium generation and expand the company’s share of the non-life market,” according to the notes attached to the financial statement.
BALA AUGIE
