Chris Ugwu 
Niger Insurance is grappling with reduced premium growth due to challenging operating environment. Chris Ugwu writes
Various factors such as shrinking federal/state government revenue, unavoidable devaluation of naira and high energy costs resulting in inflammatory landscape have all increased the challenges being faced by insurance companies in Nigeria. Access to forex by businesses and individuals alike has become very difficult as the year progresses, and the gap between the interbank and parallel market has been highly compounded by COVID-19.
The effect has been low capacity utilisation by industries and outright shutting down of many plants with attendant layoffs impacting the ability of businesses, individuals and governments to enter into insurance contracts and pay appropriate premiums. The issue of unbridled competition in the industry is also driving rates well below acceptable limits and further reducing the quantum of premium income available.
Hence, Nigerian insurers are grappling with reduced premium growth due to economic crunch, higher impairments from oil and gas exposures, and increasing regulatory capital requirements. This is despite the insurance industry witnessing tremendous changes as a result of more reforms embarked upon by the National Insurance Commission (NAICOM), which include the full implementation of risk based supervision, the introduction of market conduct reforms, claims settlement reforms as well as financial inclusion, among others.
The initiatives are all geared towards enhancing transparency in the industry and improving the general perception and image of insurance business in Nigeria. However, in spite of these measures, the insurance sub-sector is still in a state of despondency.
The sub-sector has found itself battling a variety of challenges as they work to improve profitability, grow and compete. These challenges, which also include negative perception, have continued to weigh down on bottom line of most of the companies. The insurance sector in Nigeria contracted by 28.15 per cent in the second quarter of the year, according to the National Bureau of Statistics (NBS).
This was contained in the NBS’ Gross Domestic Product report for the second quarter of 2020. In the report, the NBS stated that the finance and insurance sector consisted of two sub-sectors, namely financial institutions and insurance, which accounted for 89.82 per cent and 10.18 per cent of the sector respectively in real terms in Q2. Part of the report read: “As a whole, the sector grew at 20.82 per cent in nominal terms (year-on-year), with the growth rate of financial sinstitutions as 30.94 per cent but –28.15 per cent growth rate recorded for insurance.” Niger Insurance got its fair share of the dwindling fortune of the sub-sector as the movement of share price has remained below 50 kobo, courtesy of the price methodology implemented early last year.
The insurance firm ended the year 2018 with good numbers as it returned to profitability, closing the fourth quarter of 2019 at a loss. The rising claims experienced in recent times by the company like its peers has upstaged the rate of growth in premium, a development industry watchers said was threatening the profitability of the company and the industry as a whole. The share price closed at 20 kobo per share when the closing bell rang on Friday.
Financials
The insurance firm began the 2019 financial year unimpressive with 74 per cent drop in profit after tax for the first quarter ended March 31, 2019. The company in filing with Nigerian Stock Exchange showed a profit after tax of N16.289 million, a drop of 74 per cent from N62.668 million posted in 2018.
Profit before tax shed 59.28 per cent from N84.184 million in 2018 to N34.273 million in 2019 while gross premium written declined by 44.76 per cent from N1.282 billion in 2018 to N708.132 million in 2019. Niger Insurance sustained poor results during the half year with a post of 72.76 per cent decrease in profit after tax for the half year ended June 30, 2019.
The insurance firm in a report obtained from the Nigerian Stock Exchange (NSE) showed its unaudited result stood at N63.292 million during the half year of 2019 as against N232.361 million posted in 2018, accounting for a drop of 72.76 per cent. Profit before tax equally dropped by 73.40 per cent from N242.773 million in 2018 to N64.559 million in 2019. Gross premium written shed 53.84 per cent to N1.117 billion during the period under review from N2.420 billion posted in 2018. Total underwritten expenses stood at N341.320 million from N916.141 million in 2018.
Niger Insurance Plc has posted a loss after tax of N323.082 million for the nine months ended September 30, 2019 as against a profit after tax of N15.764 million in 2018. Loss before tax stood at N307.647 million in 2019 as against profit before tax of N48.392 million in 2018. Gross premium written dropped by 50.79 per cent to N1.497 billion from N3.042 billion in 2018. Clams expenses stood at N1.146 billion from N1.517 billion posted in 2018. For the fourth quarter (Q4) ended December 31, 2019, Niger Insurance posted a loss after tax of N1.329 billion as a against a profit of N220.500 million in 2018.
Gross premium written was N342.832 million in 2019 in contrast to N1.413 billion in 2018, representing a drop of 75.74 per cent. Claims expenses stood at N653.812 million from N176.624 million in 2018, accounting for a growth of 270.17 per cent. Check at the state of the company’s financial disclosures to the Nigerian Stock Exchange showed that the insurance firm’s Q4 2019 result was the last submitted to the Exchange.
Q2’20 financial statement
The Board of Directors and Man-agement of Niger Insurance Plc recently notified shareholders and other stakeholders that it was unable to submit its Second Quarter Unaudited Financial Statements for the period ended June 30, 2020 to the Nigerian Stock Exchange by July 30, 2020 as required by the regulatory agency.
A notice to the NSE by the company said: “This unintended delay resulted from the inadvertent delay in obtaining the required approval on its Audited Financial Statements for the year ended 31st December, 2019 from its primary regulator, National Insurance Commission (NAICOM) which is a prerequisite for the submission of the completed UFS.
“While we are optimistic that the Audited Financial Statements will soon be submitted to The Exchange once approved by NAICOM to enable the submission of the UFS, the board and management of Niger Insurance Plc sincerely apologise for any inconvenience that this delay may cause to its stakeholders.”
Operational challenges
Chairman, Niger Insurance, Yusuf Abubakar, had while presenting the company’s score card to the shareholders at an annual general meeting (AGM), noted that the insurance firm lost a major Federal Government account as a result of the transfer of the Deposit Administration Schemes to a designated Federal Government agency in full implementation of Pension Reform Act 2004.
Abubakar explained that the downward movement in the performance of the company was as a result of discontinuation in underwriting of the deposit administration scheme and the application of relevant assets to settle substantial part of the liabilities thereof. Abubakar said certain factors including shrinking federal/state governments’ revenues, unavoidable devaluation of the Naira and high energy cost resulting in inflationary landscape, access to forex by businesses and individuals.
All these, he explained, worked together to make things tough for the industry during the period under review. On how the group fared in the face of these, Abubakar said: “Despite challenging economic indices, the group delivered a modest performance in 2016 with the overall result reflecting a fairly strong and sustainable company built on solid fundamentals indicating that strict implementation of its strategic initiatives will take it to greater heights.” He said the company, during the period, managed to break even as a result of its prudent underwriting management.
Looking forward
Niger Insurance is undergoing a massive restructuring exercise which cuts across all departments and levels in the entirety of the organization. This exercise according to the company, is aimed at better positioning the company for higher performance in the ever-evolving insurance industry in Nigeria, and re-establishes it as a company of first choice.
The result of the restructuring exercise is expected to be unveiled to the public soon, a source in the company said. Niger Insurance had said it was set to attract fresh capital from new investors in a bid to drive its transformation initiative. Abubakar, who disclosed this in Lagos, said that the transformation initiative would revolve around retail strategy, its culture and processes to produce a new brand in the market.
Abubakar stated: “The board has concluded a company transformation exercise which should reposition the company on the path of sustained growth soon. “I am pleased to report that the Board has reached advanced stages of discussion with investors who will add to capital and bring technical expertise to your company. “We believe that at these challenging times, this is a welcome development.”
Last line
For the insurance sector to experience positive times, the industry should embrace changes in business environment, which presents uncommon opportunities to deepen penetration through creativity and ingenuity.