African Alliance Insurance Plc experienced a significant deterioration in its financial performance in the first quarter of 2023, as weaker underwriting income, higher claims and a sharp fall in investment returns pushed the life insurer into a N1.72bn total comprehensive loss.
The figure represented a major reversal from the N1.07bn profit recorded in the corresponding quarter of 2022, highlighting the financial pressures confronting one of Nigeria’s oldest specialist life insurance companies.
Founded in 1960, African Alliance has faced persistent operational and structural challenges amid a difficult operating environment for insurers. Its first-quarter results showed pressure across both its underwriting and investment businesses.
Premium income declines
The company’s gross premium written fell by 20 per cent to N1.88bn from N2.36bn recorded in the first quarter of 2022.
Gross premium income also declined by 15 per cent to N1.87bn, while net premium income dropped to N1.80bn from N2.14bn a year earlier.
The reduction in premium income contributed to a sharp deterioration in underwriting performance. African Alliance recorded a net underwriting loss of N993.35m, compared with a profit of N480.21m in the same period of the previous year.
Underwriting expenses, however, declined marginally by two per cent to N377.90m.
Claims costs moved in the opposite direction, rising three per cent to N1.23bn during the period.
Investment income plunges
The insurer’s financial position was further weakened by a substantial decline in investment income.
Investment income fell by 74 per cent, from N559.21m in the first quarter of 2022 to N145.14m in the period under review.
At the same time, long-term insurance contract liability adjustments increased sharply, rising from N78.48m to N1.20bn.
The combined effect of weaker premium generation, higher claims and reduced investment earnings placed considerable pressure on the company’s overall performance.
Key ratios weaken
African Alliance’s financial ratios reflected the deterioration in its underwriting business.
The company’s loss ratio increased to 66 per cent from 51 per cent, while its expense ratio rose to 20 per cent.
As a result, the combined ratio climbed from 67 per cent to 86 per cent.
Its underwriting margin also moved from a positive 22 per cent to a negative 55 per cent, while return on equity fell to negative 272 per cent.
The company’s basic loss per share stood at N0.08, compared with earnings per share of N0.05 in the first quarter of 2022.
Equity position comes under pressure
The insurer’s balance sheet also weakened during the period.
Total assets declined by two per cent from N49.53bn at the end of 2022 to N48.31bn as of March 31, 2023.
Total liabilities, however, increased marginally by one per cent to N47.68bn. Insurance contract liabilities accounted for N41.64bn of the total, while investment contract liabilities stood at N4bn.
More significant was the contraction in shareholders’ equity, which fell 73 per cent from N2.35bn to N631.46m.
Regulatory capital challenge
The company’s financial difficulties also coincided with a broader regulatory push to strengthen capitalisation across Nigeria’s insurance industry.
African Alliance disclosed in its financial statements that it was below the minimum capital threshold prescribed under the Insurance Act.
“The company did not meet the minimum capital requirement of N2bn as stipulated by the Insurance Act,” the management stated.
Its solvency position was similarly under severe pressure. The company reported a solvency margin deficit of N7.27bn, with its net solvency ratio standing at negative 363 per cent.
The results underscored the scale of the financial and capital challenges facing the insurer as regulators and industry operators continued to grapple with the need to strengthen the resilience of insurance companies.
The first-quarter financial statements were authorised on June 15, 2023, by Executive Director, Finance, Olabisi Adekola, and Managing Director/Chief Executive Officer, Joyce Ojemudia.
For African Alliance, the figures presented a difficult first quarter, marked by declining premium generation, rising claims, weaker investment income and a substantial erosion of its capital position.
