Unity Kapital Assurance Plc has continued to struggle with harsh environment, which has impaired its earnings. Chris Ugwu writes
There is no doubt that the insurance sector plays a vital role in the economy especially in emerging and transitional economies such as Nigeria. Specifically, insurance helps to grow and develop, as well as provide a reliable cover for risk to the citizens.
This is even as the country is under daily threat from not only risks emanating from natural disasters such as floods, rainstorms but also that of manmade security risks such as the current threat of Boko Haram, kidnapping and other heinous crimes.
The sector is important for sustained economic growth, because it deepens and broadens the domestic financial services and generates higher savings rates and greater economic development.
However, despite the recapitalisation of insurance firms in Nigeria in 2007, the sector still struggles with challenges such as under capitalisation, dearth of appropriate human capital and professional skills, poor returns on capital, existence of too many fringe players and poor asset quality.
Other challenges include prominence of unethical practices, significant corporate governance issues, insurance premium flight, poor business infrastructural facilities, especially in the area of ICT, lack of innovation in product development, lack of awareness on the part of consumers on the uses/suitability of insurance products, low gross domestic product, GDP, per capita figures and poor corporate governance structures.
Unity Kapital Assurance Plc is one of the companies that have got fair share from the dwindling fortunes of the subsector; the company is among the insurance firms that have remained at nominal level in share price due to dwindling fortune in financials. Its share price has remained stagnated at nominal value of 50 kobo yearto- date as sell pressure enveloped the demand of stocks.
The insurer, which ended 2015 financial year in the green territory began the year 2016 on the downswing, recording 81.93 per cent decline in net earnings for the first quarter ended March 31, 2016.
Following massive decline in key performance indicators, the firm, which was unable to get out of the woods, also finished the full year 2016 with 37 per cent decrease in net earnings for the financial year ended December 31, 2016.
Market watchers attributed the inability of the company like its peers to rise above the nominal level and break even in terms of earnings to crisis of confidence. They also believe the claims settlement in 2016, which amounted to N619.2 million might have impacted on the bottom-line of the company.
Unity Kapital Assurance had recorded 142 per cent increase in net earnings for the financial year ended December 31, 2015. The assurance firm posted a profit after tax of N340.503 million as against N141.477 million recorded during the comparable period of 2014, representing a growth of 142 per cent.
Similarly, profit before tax grew from N175.024 million posted the previous year to N411.081 million during the year under review, accounting for an increase of 136 per cent.
The company’s revenue however, dropped by 14 per cent to N2.684 billion in the review period of 2015 from N3.115 billion in the corresponding period of 2014. Unity Kapital began the 2016 financial year with on a negative note, recording 81.93 per cent decline in profit after tax.
The insurer recorded a profit after tax of N39.264 million during the first quarter ended March 2016 as against a profit after tax of N217.369 million in 2015, accounting for a decline of 81.93 per cent. Profit before tax stood at N45.013 million in 2016 compared to N276.242 million posted a year earlier, representing a drop of 83.71 per cent.
The gross premium written was down by 16.42 per cent from N1.002 billion in 2015 to N837.448 million in 2016, accounting for a drop of 16.42 per cent. Unity Kapital Assurance Plc also recorded 35.44 per cent decrease in net earnings for the third quarter ended September 30, 2016.
In a filing with the Nigerian Stock Exchange, the assurance firm posted a profit after tax of N171.738 million as against N265.997 million, representing a drop of 35.44 per cent. Profit before tax declined from N312.938 million posted the previous year to N215.382 million during the year under review, depicting a decrease of 31.17 per cent.
The company’s premium written also dropped by 23.28 per cent to N1.760 billion in the review period of 2016 from N2.294 billion in the corresponding period of 2015. Consequently, Unity Kapital Assurance ended the year 2016 on the red territory, recording 37 per cent decrease in net earnings for the financial year ended December 31, 2016.
The assurance firm posted a profit after tax of N180.946 million as against N340.503 million recorded during the comparable period of 2015, representing a drop of 37 per cent.
Similarly, profit before tax declined from N411.081 million to N235.227 million, accounting for a decrease of 34 per cent. The company’s premium written also dropped by 18 per cent to N2.197 billion in the review period of 2016 from N2.684 billion in the corresponding period of 2015.
Unity Kapital settled total claims of N619.2 million in 2016. Giving a breakdown of the claims paid, the immediate past Managing Director/CEO of the company, Mr. Olatunji Oluyemi noted that general accident insurance topped the list with total claim settlement of N242.8 million, followed by motor insurance with N129.4 million.
Other classes of claim paid within the period under review include engineering with a total of N119 million, oil and gas claims paid amounting to N32.9 million, fire claims are N58.8 million, with aviation claims being N20.6 million.
Reiterating the company’s obligation to prompt claims payment, Oluyemi stated that UnityKapital Assurance Plc will always pay all genuine claims to its policyholders.
He said: “UnityKapital Assurance Plc is resolved to constantly improve on its claims settlement processes so as to strengthen investor and customer confidence in its operations. We are determined to settle all genuine claim obligations in good time.”
Since the crash of the nation’s capital market in 2008, negative perception has trailed the sub-sector, which was compounded by inability of about 85 per cent of the companies in the industry to pay dividend to shareholders for many years.
Investors in the insurance sub-sector of the market have been lamenting over what they described as “par value state of insurance share prices.” Speaking to New Telegraph, Managing Director, Crane Securities Limited, Mr. Mike Eze, said some of the insurance companies are not helping matters as they are most visible among companies that are often sanctioned for breaching post-listing requirements.
He linked the inability of the sub- sector rise above the nominal level to crisis of confidence. He said the few ones that raised high expectation for good results ended up posting negative financial results.
“There were high expectations that some of them will bring good results to the market, investors started taking position on the insurance stocks, but they ended up posting negative results, which now has a spiral effect on other insurance companies, hence investors started dumping their shares,” he said.
Chief Executive Officer, Highcap Securities Limited, Mr. David Adonri, said insurance sector has not improved on its performance after the recession because of volatility of the sector.
He said though penny stocks would have attracted investors but because of low dividend payout of the companies, investors are not willing to take position.
Adonri said that the trend in Nigeria’s insurance sector has remained a product of underdevelopment of the sector as well as public perception of the insurance business in the country.
He noted that even though few of the insurance companies have already submitted their reports, most of the companies are still challenged in terms of filling their reports and regulatory approval of their reports among other issues.
Speaking on why the sector has not been able to thrive in the Nigerian capital market as obtainable in other parts of the world, he said that the Nigerian market and economy has not been able to break even because of general perception of insurance business in the country.
Lack of awareness on the benefits of insurance and the inability of insurers to introduce innovative and market-driven products have remained major impediments to the growth of insurance business in Nigeria.