International Energy Insurance is technically insolvent
International Energy Insurance (IEI) Plc is technically insolvent as its total liabilities of N10.45 billion as at September 2016, exceeded total assets of N7.69 billion.
This resulted in a negative shareholders fund of N2.75 billion in the period under review.
Negative shareholder equity on a company’s balance sheet is a red flag that should prompt potential investors to take a closer look before committing their money.
Also, negative stockholders equity arises when a firm has been recording recurring losses and such losses are gradually eroding owner’s value.
IEI has negative retained earnings of N14.05 billion, validating the above paragraph that the company has recorded more losses than profit since its existence as a corporate entity.
IEI has a solvency margin ratio of -1.71 percent, which underpins the above argument that the insurer is financially unstable.
To further exacerbate the already anemic position of the insurer, underwriting performance has been deteriorating as premium income continues to shrink.
Combined Ratios (CR) stood at 1.33 percent in the period under review, higher than the 100 percent threshold.
The CR is the addition of underwriting expenses and loss expenses multiplied by 100. A ratio less than 100 percent means a firm is efficient.
An inefficient underwriting performance resulted in a 54.34percent drop in underwriting profit to N410.61 million in September 2016 from N900 million the previous year.
3 years ago, the National Insurance Commission (Naicom), the apex regulator for the insurance industry, fired the management and board of IEI and replaced them with an interim management board.
The apex body said that such a decision was taken in the interest of shareholders and policy holders that have invested in the firm with the expectation of return on their investment.
The shareholders of IEI gave the Interim Board and the Technical Committee approval to recapitalise the company with N9 billion.
For the first nine months through September 2017, the Nigerian insurer recorded a loss after tax of N641.80 million as at September 2016 as against a loss of N643.38 million recorded in the corresponding period of 2015.
International Energy Insurance paid N859.12 million in claims as at September 2016, representing a 30.72 percent reduction from the N1.24 billon recorded last year.
Claims ratio otherwise known as loss ratio increased to 53.68 percent in the period under review as against 37.38 percent as at September 2015.
Underwriting expenses were down 29.28 percent to N1.28n billion in the period under review, as against N1.81 billion recorded the previous year.
IEI’s premium income has been shrinking, which means top lines (revenue) cannot cover all increases in costs.
Gross premium written (GPW), Gross premium income (GPI) and Net premium income (NPI) dipped by 52.50 percent, 39.40 percent, 38.90 percent to N1.61 billion, N2.03 billion and N1.60 billion respectivel y In September 2016.
IEI emerged in June 2003 when a group of investors and management acquired 70 per cent majority equity stake in Global Assurance Company Limited. Ironically, Global Assurance was then 34 years old and under the technical management of Naicom.
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