Aiico Insurance Plc has fallen off the cliff as combined ratios (CR) dampened profit despite contributions from sale of significant investment.
For the first nine months through September 2017, Aiico Insurance’s net income fell by 20.39 percent to N2.42 billion from N3.04 billion as at September 2016.
The fall at the top line (profit) was due to rising combined ratio (CR) as demand for claims continues to mount.
Aiico Insurance’s CR of 117.61 percent in the period under review, which is higher than the 78.64 percent recorded last year, has crossed the 100 percent threshold.
The combined ratio 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 percent indicates that the company is making underwriting profit while a ratio of 100 percent means that it is paying out more money in claims that it is receiving from premiums.
As a result of spiralling underwriting expenses, Aiico Insurance reported an underwriting loss of N837.64 million in the period under review as against an underwting profit of N5.36 billion as at September 2016.
The Nigerian insurer could have recorded a loss in the period under review save for income sale of investment of N2.21 billion.
Further analysis of Aiico Insurance’s financial statement shows claims expenses spiked by 38.63 percent to N16.65 billion in September 2017 as against N12.01 billion as at September 2016.
The Nigerian insurer’s claims expenses increased to 102.93 percent in the period under review as against 64.40 percent the previous year.
This means Aiico claims expenses have exceeded its revenue, signalling an inappropriate mix of revenue and cost.
The Nigerian insurer’s gross premium income was down by 10.24 percent to N17.26 billion in September 2017 from N19.23 billion as at September 2016. Net premium income (NPI) dipped by 13.35 percent to N14.53 billion in September 2017 from N16.77 billion as at September 2016.
Experts are calling for an insurance sector consolidation as there are too many weak insurers in the country. This is because these firms are undercapitalized and fragmented to take on more risk.
Indeed 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 of 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 percent, 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.
However, Aiico Insurance can take on more risk and fund future expansion plans as its shareholders’ fund of N8.46 billion is higher than the N3 billion regulatory requirements.