NSIA’s underwriting profit slumps on weak premium income
by BALA AUGIE
January 4, 2018 | 12:59 am| | | Start Conversation
NSIA insurance Plc has been hit by weak premium income, resulting in drop in underwriting profit as rising management expenses continues to erode profitability.
For the year ended December 2016, NSIA’ underwriting profit dipped by 42.41 percent to N956 million as against N1.66 billion the previous year.
The receding underwriting profit was due to a 14.05 percent and a 21.70 percent reduction in gross premium income (GPI) and net premium income (NPI) to N4.77 billion and N2.67 billion as at December 2016.
Analysts attribute the weak top line (revenue) to an economic downturn of 2016 that saw the country slip into its first recession in 25 years.
Insurers’ premium income dipped as companies were unable to take on cover due to a slow-growing economy.
An industry expert who does not want his name mentioned told BusinessDay that the introduction of market penetrating product could help underpin NSIA’s revenue.
NSIA will have to cut costs as management expenses of N1.74 billion recorded in the period under review overwhelmed net income of N277 million.
Insurers in Africa’s largest economy are grappling with huge management expenses that are eroding profitability while margins remain surprised.
The cumulative management expenses of 43 insurers stood at N100.13 billion as at December 2016, which is three times the profit after tax of N31.54 billion recorded by these firms in the period under review, according to data obtained from the National Insurance Commission (NAICOM).
Experts say such costs are unavoidable as firms spend more on the latest technology and the acquisition of talented staff with a view to increasing their share of market.
“We are trying to cut down on management expenses, however, there cost you cannot control. The cost of diesel oil to power head office and branches is on a high side. Personnel costs are rising because we trying to recruit talented staff,” said Jide Orimolade, managing director and Chief Executive Officer of Law Union and Rock Insurance Plc.
“Companies should try to put cost control in their front burner and see how expenses can go down as profit margin continues to remain supressed,”
Management expenses of the 43 firms stood at 83.41 percent, which means they have spent N83 for every N100 of premium income generated.
While NSIA recorded lower revenue and profit, the insurer is efficient as combined ratios (CR) are less than the 100 percent threshold.
CR stood at 79.90 percent in the period under review, tough lower higher than the 62.50 recorded as at December 2015.
Loss ratio otherwise known as claims ratio increased to 53.90 percent in December 2016 as against 38.10 percent the previous year. Higher loss ratio validates the sharp drop in premium income.
The insurer has paid N1.44 billion in claims as at December 2016, which represents a 9.72 percent from last year’s figure of N1.30 billion.
NSIA could posts stellar numbers in 2017 when its results are made available on the website of the National Insurance Commission (NAICOM).
This is because the country existed a recession as the economy expanded by 0.55 percent and 1.40 percent in the first and second quarter of 2017.
Also, there has been improved liquidity since the central bank introduced the Investors’ and Exporters’ window while the foreign exchange market has been liberalized.
Analysts are betting that the speedy implementation of the N8 trillion record budgets will bolster consumer spending while contemporaneously boosting economic activities.
The International Monetary Fund (IMF) has said that Nigeria’s economy will grow by 2.1 percent in 2018 due largely to dependency on oil revenue.
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