Stakeholders have urged insurers to embark on another round of consolidation for them to take advantage of the opportunities in the Nigerian economy.
This little analysis is to validate or corroborate the propositions of the aforementioned experts.
The cumulative shareholder’s fund of the 43 insurance firms that have released 2016 full-year financial results on the website of the National Insurance Commission (NAICOM) stood at N306.90 billion, which is lower than the N767.69 billion total equity of Tier one lender, Zenith Bank.
Also, the total market capitalization of the most liquid 15 insurance firms stood at N103.25 billion, which is lower than the N425.50 billion market cap of Tier 2 lender, Stanbic IBTC Holdings.
Analysts are of the view that strong capital bases would give insurers the leeway to take on more risk and compete with their peers on the global arena.
Insurers with inadequate shareholders fund are preparing to raise additional capital in preparation for the next phase of the implementation of the Risk-Based Supervision by the NAICOM.
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Mutual Benefits Assurance Plc plans to raise additional capital of N4 billion via rights issue as it seeks to shore up capital. Shareholders of Wapic Insurance Plc have approved the company’s plan to raise additional capital in the sum of N10 billion. “The company is approaching its shareholders at this time to seek approval to raise additional capital as a proactive step towards getting the company ready and set for a much-anticipated regulatory increase in the minimum capital of insurance companies,” said Aigboje Aig-Imoukhuede, Chairman of Wapic Insurance.
The cumulative solvency ratio of the 43 insurers stood at N256.53 billion as at December 2016 while Goldlink Insurance and International Energy Insurance have a negative solvency ratio of N4.21 billion and N5.43 billion. The economic downturn brought on by a sudden drop in oil price and severe dollar shortage has eroded the profitability of most of the firms.
Also, rising huge management expenses have been surprising profit, raising concerns about the retained earnings of insurers.
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The cumulative management expenses of 43 insurers stood at N100.13 billion as of December 2016, which is nearly three times the profit after tax of N31.54 billion in the period under review.
This resulted in an average combined ratio (CR) of 128.74 per cent as of December 2016, resulting in a negative real underwriting performance of N33.85 billion, based on BusinessDay’s calculations.
The CR is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium. The ratio is typically expressed as a percentage. A ratio below 100 per cent indicates that the company is making underwriting profit while a ratio above 100 per cent means that it is paying out more money in claims that it is receiving from premium. Nigeria’s market is fragmented and in its embryonic as premium penetration is low.
Out of Nigeria’s estimated population of two hundred million populations, and ninety million adults, only two million people have one form of insurance cover or the other. This explains why the sector’s contribution to GDP is less than 1 per cent, lagging sub-Saharan countries like Kenya and South Africa Experts have attributed the poor contribution of the sector to the economy to apathy toward insurance, lack of proper regulation and weak consumer spending.
BALA AUGIE
