Wapic Insurance Plc’s profit has soared in the third quarter of the year, thanks to a surge in other operating income and share of profit of associate company amid an adverse operating environment.
Industry experts attribute the company’s stellar performance in the period under review to the introduction of market penetrating products across a wide spectrum and its strategic diversification of income stream.
With a proven reserve, strong growth in premium income and a combined ratio (CR) below the regulatory threshold, Wapic has delivered returns well above its cost of capital. For the first nine months through September 2016, Wapic’s net income surged by 3310.47 percent to N1.14 billion from N33.62 million the previous year.
The growth in profit was as a result of a 864.14 percent upsurge in other operating income to N2.42 billion and share of profit of associate company to a tune of N999.38 million. Other operating income increased significantly due to gains in fair value of the Group’s foreign exchange investments.
The management and boards of directors of Wapic insurance have utilized the resources of its owners in generating a high profit as return on equity (ROE) increased to 6.93 percent in September 2016 from 0.22 percent the previous year.
Similarly, return on assets (ROA) moved to 4.19 percent in September 2016 as against 0.145 percent the previous year. Wapic insurance made a leap forward at the top lines despite a weak consumer spending, rising unemployment, cultural beliefs, lack of awareness about the benefits of a cover, threatening premium penetration in Africa’s most populous nation.
The Nigerian insurer’s gross premium written (GPW) increased by 12.84 percent to N6.40 billion in September 2016 from N5.67 billion the previous year. Gross premium income (GPW) grew by 26.02 percent to N5.52 billion in September 2016 from N4.38 billion last year.
Net premium income (NPI) increased by 9.83 percent to N3.24 billion in September 2016 as against N2.95 billion as at September 2015.
Insurance companies in Nigeria are hard hit by economic downturn as rising inflation that hurt consumer wallets made it difficult for people to take up a cover.
Also, a shortage of dollar that squeezed companies and resulted in mass layoffs means contributory pensions by employees will be lost hence compounding insurers’ woes. Experts say the going concern of insurance companies are threatened and huge premium income lost given the spate of business closure especially in the Aviation, Manufacturing and Telecoms sectors.
Nigeria economy contracted by -2.10 percent in the third quarter of 2016 on the back of lower oil price and a severe dollar shortage, according to data from the National Bureau of Statistics (NBS).The IMF forecasts the GDP will shrink by -1.80 percent by 2016, the worst recession in 25 years.
Inflation rate increased to 17.90 percent for the month of September, driven by high price of gasoline and rising price of food stuff.
Nigeria unemployment rate was recorded at 13.3 percent in second quarter of 2016, up from 12.1 percent in the three months to March, reaching the highest since 2009, according to the NBS
“A slowing down of the economy will necessarily imply a decline in insurance business,” said Funmi Babington-Ashaye MD/CEO Risk Analyst Insurance Brokers Ltd
Favorable Combined Ratios despite rising claims expenses
Wapic insurance CR of 93.71 percent, an increase from 66.10 percent recorded last year, is lower than the 100 percent threshold, this means the company is profitable and there are no threats to its going concerns.
The rise in CR was due to rising claims and underwriting expenses as many insurance companies are paying more for motor accidents in the period. Claims expenses increased by 85.91 percent to N1.84 billion in September 2016 from N933.86 million the previous year. Claims ratio moved to 56.72 percent in September 2016 as against 33.69 percent the previous year.
The high claims ratio means Wapic insurance is paying more money to policy holders from its revenue. Underwriting expenses was up 25.12 percent to N1.20 billion in September 2016 compared with N959.10 million the previous year.Underwriting expenses ratio increased to 37 percent in September 2016 as against 32.50 percent the previous year.
Reinsurance expenses grew by 60.63 percent to N2.28 billion due to premium growth and increase in facultative reinsurance to balance exposure, particularly in general accident and oil and energy businesses. Wapic insurance underwriting profit fell by 52.39 percent to N626.01 million on the back of high claims payout experience for the period from one off accident.
Strong Balance sheet
Total assets increased by 14.73 percent to N27.18 billion in September 2016 from N23.23 billion; driven primarily by 149.23 percent and 89.79 percent rise in reinsurance and financial assets to N2.30 billion and N8.18 billion , respectively.
Cash and cash equivalents dipped (due to low returns in the money market during the period) by 62.12 percent from its September 2015 position as the company took advantage of higher yielding assets.
Trade receivables (outstanding premiums on brokerrelated businesses written during the period), is at N211.16 million, a 61.96 percent reduction from its September 2015 position. The company’s trade receivables are being tracked in line with NAICOM guidelines
Insurance contract liabilities increased by 43.48 percent from September last year, following a growth in GWP during the period, highlighting the need to maintain adequate reserves.
Total liabilities grew by 22.90 percent to N10.73 billion in September 2016 when compared to last year’s position, mainly resulting from the growth in Insurance contract liabilities recorded for the period. The Group’s Shareholders funds grew 10 percent increase to N16.45 billion in September 2016 from N14.96 billion the previous year.
About Wapic
“Wapic Insurance Plc. is a leading West African multi-line insurance company providing solutions covering life, general and special risks. Established in 1958 and listed on the Nigerian Stock Exchange since 1978, Wapic’s mission is to transform into a diversified financial services institution, delivering value in a sustainable manner to her customers and stakeholders while playing a lead role in the transformation of the industry.
With headquarters in Lagos, Nigeria, Wapic is organized into two core business segments, General and Life Insurance. The Company has two wholly owned subsidiaries, Wapic Life Assurance Limited and Wapic Insurance (Ghana) Limited as well as an associated company, Coronation Merchant Bank Limited. Through a diverse portfolio of products and a commitment to providing the best customer experience possible, Wapic, with an AM Best Financial Strength rating of “B-” and an Issuer Credit rating of ‘bb-”, has significantly enhanced its underwriting capacity placing it among the top five insurance companies in Nigeria by solvency and capital.”
WAPIC Insurance GDRs quoted on international market
Wapic insurance has a Global Depositary Receipts (GDR) programme with the Bank of New York Mellon (BNY), which became effective in June 2016.
The GDR is a negotiable instrument denominated in dollars, similar to a stock certificate, which is issued by a US depository bank (BNY) to evidence one or more depositary shares, each of which represent a fixed number of ordinary shares of Wapic. The local custodian bank will be StanbicIBTC Bank plc.
The establishment of the GDR programme will not be accompanied by a listing or capital raising. It is not a new offering of shares and the GDR’s are based on the shares of the Company currently in issue.
The Board believes that the programme will provide the company and indeed the Nigerian insurance industry with a measure of exposure to the US and European capital markets, and is usually a precursor to approaching the global market for capital raising, upon regulatory approvals.
Wapic is the first Nigerian insurance company to participate in a GDR program and now joins the ranks of other leading African financial institutions that have established DR programmes.
Aigboje Aig-Imoukhuede, chairman, Wapic Insurance plc, commented: “We are delighted to have our GDRs quoted on the International market, which will facilitate ownership and holding options for a broader range of investors. This will increase awareness of Wapic’s strategy and transformative growth amongst the US investment community. Wapic continues to deliver on its promise to transform the insurance industry with its strong growth, solid risk approach and governance in Nigeria and Ghana.”
Through a diverse portfolio of products and a commitment to providing the best customer experience possible, Wapic, with an AM Best Financial Strength rating of “B-” and an Issuer Credit rating of ‘bb-”, has significantly enhanced its underwriting capacity placing it among the top five insurance companies in Nigeria by solvency and capital.
BALA AUGIE
