Insurance companies report higher claim expenses as inflation and exchange rate bite

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Claims paid by major Nigerian insurance companies increased to N94 billion in the first 9 months of 2022. This is due to a period of high inflation in 2022 that has seen the cost of goods and services rise across the country.

Inflation increases the risk of higher operating costs for insurance companies when they honor their customers’ claims for life and non-life products.

Naijaonpoint reviewed the insurance claim expenses of the top 5 insurance companies by net assets listed on the Nigerian Stock Exchange. They are Custodian Insurance, NEM Insurance, AxaMansard, AICO, and Coronation Insurance.

By the numbers: The quintet of insurance companies incurred a total net claim of N94 billion in the first 9 months of the year compared to N66.8 billion in the same period in 2021, representing an increase of 40.7%.

  • By comparison, the total 2021 total net claims reported by the 5 insurance companies was N90.1 billion.
  • Insurance claims are often compared to net premiums to gauge how efficient companies are at managing costs.
  • During the period under review, insurance companies reported net premium income of N148.7 billion, meaning claims as a percentage of net premium was 60.5%. This compares to 62.9% for the same period in 2021.
  • This suggests that insurance companies were still able to increase their net premium income amid the rising cost of meeting claims obligations.

Claims Controllers: Custodian Investments and Axa Mansard contributed significantly to the increase in claims in the period under review.

  • The custodian claims incurred for around N28 billion alone led to the increase in the total claims collated for all companies under review.
  • Both companies contributed more than 58% of the total claims for the period and more than 91% of the reported increase in claims.

Why the increase in claims: While the insurance companies did not specifically explain what caused claims to rise, several snippets of their report point to higher inflation and a higher exchange rate as the main factors driving claims up.

  • The rise in claims is largely attributed to rising costs of goods and services that have forced insurers to pay more for underwriting assets.
  • The high costs of health insurance also contributed to the increase in claims paid by some insurers, especially Axa Mansard.
  • The rapid depreciation of the Nigerian exchange rate is also believed to have contributed to the increase in claims paid by some of the insurers.

What they are saying: Claims paid by insurance companies cover health, life and non-life related businesses.

  • For example, most of NEM’s insurance claims arose from its auto insurance division. It paid out N3.69 billion in total claims out of a total claim of N4.8 billion.
  • The Axa Mansard HMO business contributed around N22 billion to its total claims of around N26 billion.
  • Axa Mansard Health CEO Tope Adeniyi provided information. “Although the company’s semi-annual report shows that claims have increased due to inflation and medical utilization, the business has continued to overcome challenges. We hope to start seeing an adjustment from October to the end of the year, as we factor in the economic situation in our premiums.”
  • AIICO’s insurance claims came largely from its dominant life business, incurring some 31 billion naira out of total claims of 32.9 billion naira.

Earnings Outlook: Despite the challenges with most companies under review, we anticipate a slightly higher profit this year compared to last.

  • Today, the after-tax profit of the five companies stands at Naira 18.1 billion, compared to Naira 12.6 billion a year earlier.
  • Most of the benefits recorded are gains from asset revaluation, as well as investment income.
  • The companies also reported a healthy cash balance of N80.1 billion compared to N75 billion at the end of last year.

insurance claims

…Insurance companies report higher claim expenses due to inflation and exchange rate bites. Read more at… Naijaonpoint.

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