Listed insurers' claims hit N101.48bn in 2019

The largest listed insurance companies are meeting obligations to policyholders, but there could be fictitious claims, deteriorating margins, and loss of premium revenue in coming months if the financial and economic headwinds caused by coronavirus tip the country into a recession.

Seventeen insurers paid a combined N101.48 billion in December 2019, which represents 17.07 percent increase from N86.68 billion recorded the previous period. Within four years, operators have paid combined N426.24 billion in claims to policyholders, as average cumulative claims or loss ratio fell to 28.05 percent to December 2019 from 32.04 percent the previous year, according to data gathered by BusinessDay.

A reduction in loss ratio means the insurance firms are profitable, thanks to double-digit growth in premium income even amid low disposable income. The loss ratio measures the total incurred losses in relation to the total collected insurance premiums. It is calculated by dividing the total incurred losses by the total collected insurance premiums. The lower the ratio, the more profitable the insurance company, and vice versa.

Following the torrent of losses incurred two years ago that resulted in weak underwriting performance, insurers have been cautious on the kind of policies they underwrite. Operators were more exposed to claims from the oil and gas sector because it carries more risk, while other major losses were also from aviation and maritime risk.

"COVID-19 will result in a global recession. When there is a recession, there will be more fraudulent claims," said an actuarial scientist who doesn't want his name mentioned. "However, this social distancing that we are observing will result in fewer accidents and thus less claims. Also fewer policies are written in a downturn and also from fewer policies," said the scientist.

Analysts are of the view that companies should have adequate risk management through reinsurance and that failure to take such measure could result in huge claims that burden an entity. Global ratings agencies Fitch and AM Best predict coronavirus will cause volatility in the financial markets alongside an increase in insurance claims and losses. The ratings agencies added that they expect the disruptions caused by the pandemic to weigh heavily on reinsurers' capital and profitability in coming months.

In Nigeria, re/insurance premiums could decline if the economic lethargy continues, as decline in equity market and low yield environment likely undermine insurers' investment portfolio capital and earnings. "There has been a reduction in the volume of transactions that will affect a lot of things. We are under an obligation to meet claims that were incurred before the pandemic outbreak," said Moronfola Monsuru, senior actuarial analyst at Wapic Insurance.

"Before now, insurance was the last on the scale of preference of many people and the pandemic is a double whammy for the industry. We are going to see more layoffs," said Monsuru. Analysts say the disruption in global supply chain due to the COVID-19, lower crude oil price, and a slowdown in business could have dire consequences on Nigeria's economy.

In order to protect the external reserve from external shocks, the central bank lowered the exchange rate to N360 from N306, a de-facto devaluation of the currency. Experts say claims in dollars before the currency weakened will balloon, but they added that obligations to policy holders may not spike if there are less dollar-denominated loss reserves. Further analysis of the financial statement of the largest companies shows AIICO Insurance's claims expenses increased by 6.12 percent to N25.33 billion in December 2019 from N23.86 billion as at December 2018; the largest insurer by asset saw loss ratio fall to 50.50 percent in the period under review from 63.37 percent as at December 2018.

Linkage Assurance's claims expenses reduced to 38.71 percent to N1.66 billion in the period under review as against N2.71 billion as at December 2018; its loss ratio fell to 25.48 percent in the period under review from 50.28 percent the previous year. Mutual Benefits Assurance's claims expenses were down by 12.24 percent to N6.12 percent in the period under review from N6.97 billion as at December 2018; the insurer's loss ratio fell to 32.44 percent in the period under review from N6.97 billion the previous year.

Source: Business day