Insurers’ underwriting expenses outpace premium

Insurers’ underwriting expenses outpace premium

By Rosemary Onuoha

There are indications that insurers are committing more resources to meeting insurance claims and other underwriting expenses. But this development may be eating into their earnings as expenses outpace gross premium written, GPW. File: insurance Analysis of the industry performance for the first half of 2018, H1’18, show that while industry GPW increased by 17.7 percent to N163.1 billion against N138.6 billion recorded in the corresponding period of last year, total underwriting expenses shot up by 28.3 percent to N82.4 billion from N64.2 billion.

According to industry watchers, this trend could persist as most insurance companies battle to retain customers in the face of the Tier Based Minimum Solvency Capital, TBMSC, which indirectly compels companies to beef up their capital base.

The trend would mean that most insurance companies are raising their commitment level as they could be reaching out to high net-worth policyholders and shareholders for the purpose beefing up their capital base.

However, analysts also believe that the trend could indicate an adverse market situation although the expenses might have been committed to improving anticipated premium income.

It could also mean increasing overhead and higher crystallization of risks.

Underwriting expenses, according to insurance companies, comprise acquisition costs and other underwriting expenses. Acquisition costs comprise all direct and indirect costs arising from the writing of insurance contracts. Examples of these costs include, but are not limited to, commission expense, supervisory levy, superintending fees and other technical expenses. Other underwriting expenses are those incurred in servicing existing policies/ contract.

Companies’ performance

Analysis of companies with high underwriting expenses shows Sunu Assurances which total underwriting expenses shot up by 129.6 percent to N1.4 billion for the H1’18 against N609.6 million recorded in the corresponding period of 2017. This was against GPW growth of -0.5 percent at N1.96 billion against N1.97 billion in the corresponding period of 2017.

Prestige Assurance’s total underwriting expenses jumped by 100.4 percent at N1.3 billion against N648.8 million recorded in the preceding year. GPW, on the other hand, increased by 31.8 percent to N2.9 billion against N2.2 billion.

Universal Insurance was next as its total underwriting expenses went up by 59.7 percent to N76.5 million against N47.9 million in the corresponding period of 2017, while GPW grew by 31.5 percent to N579.2 million against N440.6 million.Continental Reinsurance’s benefits and underwriting expenses went up by 52.3 percent to N13.4 billion against N8.8 billion, while GPW went up by 26.9 percent to N19.3 […]

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