Ensure Assurance’s restructuring strategies has paid off as the composite insurance company returned to profit on increased investment margins and a very strong organic growth.
The year 2016 was an excellent year for the Nigerian insurer as it set the stage for a long term strategic growth amid environment beset by rising inflation, lower oil price and a severe dollar shortage.
For the year ended December 2016, Ensure insurance posted a profit after tax of N1.05 billion as against a loss of N476.72 million the previous year. An investment income of N192 million in the period under review also fillip bottom line(Profit)
The Nigerian insurer’s return on equity (ROA) of 16.88 percent and return on assets (ROA) of 9.55 percent is one of the strongest among insurance companies in Africa’s largest economy.
Ensure Assurance in good financial health, profitable and there are no threats to going concern as its combined ratio (CR) of 87.43 percent, is lower than the 100 threshold.
CR in the insurance world is the combination of loss ratios otherwise known as claims ratio and underwriting expenses. The favorable CR culminated in a positive real underwriting result of N297.23 million. Ensure Insurance underwriting profit spiked by 74.47 percent to N601 million from N344.30 million the previous year; thanks to strong underwriting capacity and contributions from changes in individual life reserves resulted in an underwriting.
Experts say the Nigerian insurer will build on its momentum and continue to intensify its aggressive expansion plans while diversifying on its product portfolio.
Its strong balance sheet and substantial capital position puts the firm a position to continually create shareholder’s value.
An industry player close to the company says the cost control mechanism put in place by the management of the company is laudable because operating expenses were down 3.19 percent to N1.82 billion in the period under review from N1.88 billion the previous year.
While Ensure Insurance recorded a stellar performance to end 2016 financial year, the industry in which it operates is beset with myriad of challenges crippling the growth of the industry. As a result of these stumbling blocks, local operators are unable to take on bigger risk and compete favorable with their big foreign counterparts.
For instance, recent report have it that African Reinsurance, a Pan African insurance company controls 65 percent of reinsurance market, While Continental Reinsurance and WAICA are left to jostle with the remaining 35 percent.
Owolabi Salami, the Chief Responsibility Officer of Ensure insurance said that one of the stumbling blocks to reinsurance business is the basic principle that on any risk, firms cannot write more than 5 percent of shareholders fund.
“If an insurer has N5 billion, he cannot write more than N250 million….. That is one limitation,” said. If we all grow our shareholders fund by investing in equity and retain more cash for future expansion, investors will find our assets attractive and the market value of the firms will be maximized,” said Salami.
Experts are calling on National Insurance Commission (NAICOM) to provide a level playing ground that would bolster the performance of local operators.
The third quarter 2016 cumulative gross premium written (GPW) of NSE Insurance 15 index, compromising 15 of the most liquid insurers, stood at N117.51 billion, which is lower than the African’s Re’s GPW of N201.15 billion
NSE 15 insurance index total asset in the same period was N396.45 billion, lower than African Re’s of N419.21 billion. Top Industry players are calling on the regulator to encourage a scheme of mergers and acquisition (M and A) as it was done in the banking sector that produced 25 strong lenders. A scheme of M and A will strengthen the balance sheet of insurers, eliminate wastages, and generally increase investor appetite in for the industry. Such strategic move will invariably place these firms in a position to undertake bigger risk.
“You still have the top six insurance companies owning and controlling more than 60 per cent of the market and that means the other 50 companies are not doing as much,” said Kabir Okunlola, Head insurance audit group KPMG.
Aigboje Aig-Imoukhuede, Chairman of Wapic Insurance, during the KPMG Insurance conference for 2017, called for increase in the capital base of insurance companies in the country to N100 billion.
Analysts say lack of trust for a cover by most people; obsolete technology, lack of skilled labour, and an economic downturn are a stumbling block to the growth of the insurance sector.
The insurance industry grew 1.1 percent in the fourth quarter versus 5.1 percent year on year, according the National Bureau of Statistics (NBS). The economy shrank for a fourth consecutive quarter in the three months through December and contracted 1.5 percent for the whole year, NBS said.
In spite of the recession ravaging the economy of Nigeria, Ensure Insurance gross premium written (GPW) increased by 46 percent to N4.19 billion in December 2016 as against N2.87 billion as at December 2015. Gross premium income was up 34.22 percent to N4.01 billion as against N2.98 billion as at December
Ensure Insurance paid a total of N1.40 billion as settlement to policy holders in 2016 while its claims ratio increased to 60.08 percent in the period under review from 46.12 percent the previous year.
This means the company paid N60 as claims to policy holders out of every N233 generated in premium income.
Ensure Insurance had introduced a claims toll free line and a friendly website with claims reporting functionality for customers to report claims quickly, without hassle and still get paid.
“The company also has a strong customer service platform, supported by well trained personnel with a thorough understanding of insurance to promptly and satisfactorily resolve all inquiries and complaints,” the statement said.
The Nigerian insurer’s underwriting expenses increased by 30.41 percent to N635.66 million while underwriting expense ratio moved to 27.25 percent in December 2016 from 20.91 percent as at December 2015.
Ensure Insurance’s insurance contract liabilities increased by 9.71 percent to N4.63 billion in December 2016 as against N4.22 billion as at December 2015. Total assets stood at N11 billion in the period under review.
The Nigerian insurance market still remains fragmented despite its huge population. Policy makers should provide a level playing ground for these firms to through the formulation of policies that will drive growth.
According a recent report by KPMG on the insurance sector, there are 32 non-life insurers, 17 life insurers, and 10 mixed companies catering for a total market of $1.6 billion (N320 billion).
The aforementioned figures are low when compared with South Africa, the continent most developed economy that has 179 insurance companies, but it serves the market of $51.6 billion (N10.2 trillion).
The average company size is also more than 10 times bigger than Nigeria, according to the report.