Sovereign Trust Insurance 92.81 percent combined ratio means financial strength

Sovereign Trust Insurance  92.81 percent combined ratio means the company has financial strength amid tough operating environment Africa largest economy.

A combined ratio less than 100 percent means an insurance company is more profitable and vice versa.

If the ratio is above 1, or 100 percent, the insurance company is unprofitable and may be in poor financial health because it is paying out more claims than it is receiving premiums.

Indeed Sovereign Trust is profitable as net income increased by 14.80 percent to N650.11 million in June 2015 from N553.87 million the previous year. Underwriting profit increased by 6 percent to N1.50 billion in the period under review as against N1.41 billion last year.

Analysts say the Nigeria insurer’s surge at the bottom line is coming at a time global reinsurer margins are heading towards unacceptable returns on the back of stiff competition, low capital pricing and low interest rates.

According to analysts at KBW, commercial insurance lines are under pressure due to diverting capital from reinsurers.

“Also the entry of some alternative capital into some areas of this market has resulted in a market state of “commercial rate increases are either decelerating or evolving into small rate decreases, “said analysts at KBW.

STI premium income grew by 6.2 percent to N4.37 billion in June 2015 as against N4.10 billion in June 2014. Gross premium earned fell by 15.40 percent to N2.53 billion in June 2015 compared with N2.92 billion last year.

Premium income has been slow among insurers in Africa largest oil producer as high rate of unemployment, cultural believes; illiteracy and rising inflation continues to dampen penetration.

It is an uphill task for insurance firms educating people into taking insurance cover especially in the north of the country where life insurance is seen as Haram (abomination).

To exacerbate the low penetration is the drop in oil price by more than 50 percent causing poor government fiscal conditions.

However there are light at the end of the tunnel for the Industry as NAICOM policies such the ‘Takaful and No Premium Cover’ will be a major driver for growth.

STI was less aggressive about claims payments as claims ratio fell to 32.0 percent to June 2015 from 45.20 percent last year. Claims expenses reduced by 60.20 percent to N825.44 million.

The operating expenses ratio increased to 60.0 percent in the period under review as against 49.20 percent last year. Operating expenses were up by 4.82 percent to N1.52 billion in June 2015 as against N1.45 billion.

Total assets jumped by 5.28 percent to N9.69 billion in June 2015 as against N9.18 billion last year and shareholders fund also increased by 26.0 percent to N5.09 billion.

STI’s share price closed at N0.50 on the floor of the exchange while market capitalization was N4.17 billion.

Source: Businessday