Staco insurance Plc said its full year profit declined 60.20 percent as the Nigeria insurer continues to wallow in huge operating and underwriting expenses.
Profit was N184.77 million in 2014, compared with N464.16 million the previous year, the Lagos-based company said in an e-mailed statement on the floor of the NSE.
The fall in profit can be attributable to the copious operating and underwriting expenses that eat most of operating profit leaving the company with low profit margins.
Staco total operating and underwriting expenses increased by 29.07 percent to N4.76 billion in 2014 from N3.67 billion last year. The Insurer’s N4.76 billion costs wipe off nearly all of its net underwriting income. The total costs makes up 76.06 percent of gross premium income.
Analysts say though the environment in which firms operate is tough, Insurance companies should put in place appropriate cost control measures that will boost profits and increase dividends of shareholders.
These weak profit margins are peculiar to the industry as 13 quoted insurers tracked by BusinessDay showed similar figures.
Staco underwriting capacity was inefficient as gross premium income increased by a mere 6.55 percent to N6.25 billion in 2014 as against N5.91 billion last year.
Gross premium income moved by 4.47 percent to N6.15 billion in 2014 compared with N5.87 billion in 2013. Net premium income grew by 3.52 percent to N 4.65 billion in the review period from N4.82 billion in 2013.
The single digit growth in premium income that is lower than the 9 percent inflation rate for the month of May shows the extent of low insurance penetration in Africa largest economy.
Nigeria’s insurance contribution of 0.56 percent to the economy of $510 billion economy is abysmally poor when compared with South Africa’s 15 percent and Kenya’s 3.40 contributions to their economy.
The weak performance makes the N1.1 trillion by 2017 premium income target set by the NAICOM a mountain to high to climb.
Analysts are calling for mergers and acquisitions among insurance firms or possible delisting of some insurers from the floor of the NSE given their low caps.
Since 2011, Staco’s share has never moved from its N.50 mark. All the 13 quoted insurance firms analyzed by BusinessDay showed share price less than N5.
The company’s total assets increased by 19.13 percent to N10.15 billion, compared with N8.52 billion in 2013.
Staco has N2.76 billion negative reserves in its balance sheet in the period under review.
The accumulated deficit happens when cumulative losses are greater than cumulative profits causing the account to have a negative or debit balance.
This means Staco has incurred more losses in its existence than profits and basically, it’s not a good sign.
The company’s shares outstanding were 6.14 billion while market capitalization was N3.07 billion.
BAL AUGIE
