Royal Exchange Insurance in a growth spurt as premium income spikes
Royal Exchange Insurance Plc is in a growth spurt as full year premium income spiked amid low penetration with subdued price of insurers in the stock market signalling the need for industry consolidation.
Data from the company’s 2016 audited financial statement showed that gross premium income in the year increased 15.92 per cent to N12.51 billion as against N10.79 billion the previous year.
Gross premium income followed the same growth trajectory as it was up 15.08 per cent to N12.43 billion amid a tough and unpredictable macroeconomic environment.
The company had an efficient underwriting capacity as underwriting profit increased by N360 million or 23.06 per cent to N1.92 billion. The efficient underwriting capacity was underpinned by an improved gross premium income and a reduction in total underwriting expenses.
Royal Exchange combined ratio (CR) of 73.91 per cent, an improvement from the 70.10 per cent recorded the previous period, is lower than the 100 per cent 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 per cent indicates that the company is making underwriting profit while a ratio above 100 per cent means that it is paying out more money in claims than it is receiving from premiums.
Royal Exchange’s stellar performance is coming at a time when insurers are struggling with a weak Naira and a shortage of foreign exchange.
The economic downturn stunted the growth of many businesses as they were forced to trim work force in order to stay afloat. The loss of job means many insurance firms lost revenue they would have realised if more people were employed.
Unemployment rate for 2016 rose to 14.20 per cent, the highest in six years, according to the National Bureau of Statistics (NBS). Inflation for the month of April stood at 17.20 per cent.
While the insurance industry is going through tough times, analysts are worried about the abysmally poor share price of insurers and they are suggesting a scheme of mergers and acquisitions to help shore up capital.
In the last 4 years, most insurers quoted on the bourse have had share price stagnated at 50k, suggesting investors are not attracted to the industry.
Analysts are concerned that the N25.20 billion total market capitalization of the most capitalized insurance company, AXA Mansard Plc, is less than the N39.20 billion total market value of tier 2 lender, Fidelity Bank.
“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 of the Insurance Audit Group at 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.
Despite a population of 180 million people, insurance industry contributes less than one per cent to the country’s GDP of $492 billion, based on 2014 rebased GDP.
However, there is light at the end of the tunnel as the new foreign exchange window is expected to ease liquidity in the financial sector.
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