Wapic Plc: Strong underwriting performance despite rise in claims expenses

Established in 1958, and listed on the Nigerian Stock Exchange 20 years later in 1978, Wapic has built a strong franchise in the largest economies in Sub-Saharan Africa and operates two subsidiaries; Wapic Life Assurance Limited and Wapic Insurance (Ghana) Limited.

The company recently released its nine month results, for the period ended September 30th 2015, showing a 22.30 percent increase in underwriting profit despite rise in claims and underwriting expenses. The impressive underwriting performance was aided by improved premium income amid tough operating environment and macro conditions.

Significant growth in premium income

For the first nine months through September 2015, the company’s gross premium written increased by 21.67 percent to N5.67 billion from N4.66 billion the same period of the corresponding year (Q3) 2014.

Gross premium income grew by 24.43 percent to N4.36 billion in 2015 as against N3.52 billion in 2014.Net premium income also followed the same growth trajectory as it rose by 37.85 percent to N2.95 billion in the period under review compared with N2.14 billion last year.

The efficient underwriting capacity of Wapic was as a result of its strict adherence to prudent guidelines and its ability to deliver quality service to customers.

Further insight into the company’s activities for the financial period showed that reinsurance expenses were up by 2.89 percent to N1.42 billion in the period under review compared with N1.38 billion in 2014.However, net underwriting income increased by 36.97 percent to N3.26 billion in 2015 from N2.38 billion in 2014.

Management expenses were up by 30.58 percent to N2.69 billion in 2015 as against N2.06 billion in 2014. Underwriting expenses also increased by 13.93 percent to N959.10 million in the period under review as against N841.76 million in 2014. However, underwriting expense ratio (UER) reduced to 32.50 percent in 2015 from 39.20 percent in 2014.

A low UER means the Nigeria insurer is spending less in acquiring, writing and servicing an insurance policy. It also means the company spent N32.50 to generate every N100 in premium income.

Low combined ratio bolsters financial performance

Combined ratio for the first nine months through September 2015 was 66.15 percent, a figure that is less than the 100 percent threshold.

When the combined ratio is under 100 percent, underwriting results are generally considered profitable; when the combined ratio is over 100 percent, underwriting results are generally considered unprofitable.

A combined ratio in the insurance world is the combination of claims ratio and expense ratio.

As a result of rising favorable CR ratio, Wapic recorded positive real underwriting results of N4.48 billion which means the insurer is efficient in generating premiums while minimizing risks to the barest minimum.

Loss ratios otherwise known as claims ratio increased to 33.63 percent in 2015 from 21.63 percent the previous year. Total net claims paid grew by 114 percent to N993.86 million. This means out of every N100 the company collects in premium, it pays N33 as claims.

The   33.63 percent loss ratio means the insurer is collecting premiums less than the amount paid in claims. In other words the company is not experiencing financial trouble.

Pretax profit reduced by 36.27 percent to N108.25 million in 2015 as against N169.88 million in 2014 on the back of rising operating expenses. Net income fell by 72.72 percent to N33.63 million in 2015 compared with N123.31 million last year.

Modest increase in returns to shareholders

The company’s balance sheet showed slight positive changes in the period under review while net assets also improved when compared with December 2014. Total assets increased by 8.43 percent to N23.91 billion in 2015 as against N22.05 billion as at December 2014.

In terms of obligations, the company’s total liabilities shows a growth of 14.26 percent to N8.97 billion in September 2015 as against N7.85 billion as at December 2014. The key driver of the increase in liabilities was an increase of 55.04 percent in insurance contract and liabilities to N4.76 billion in 2015 as against N3.07 billion as at December 2014.

However, investment contract and liabilities was flattish at N1.16 billion while other payables reduced by 14.87 percent to N2.46 billion in September 2015 compared with N2.89 billion as at December 2014.

The company’s net assets otherwise known as total equity rose by 5.13 percent to N14.93 billion in 2015 from N14.20 billion as at December 2014. Return on equity (ROE) reduced to 0.22 percent in September 2015 compared with 86 percent as at December.

AM Best’s ‘B-‘rating validates impressive performance

Wapic’s strong underwriting performance has paid off as  the Nigeria insurer was rated B- by A.M. Best, a global credit rating agency. The insurer was also awarded an Issuer Strength Rating, ISR, of ‘BB-’ by the rating agency.

The rating grade underscores the company’s enhanced underwriting capabilities, performance and its strong enterprise risk management framework. The rating also recognizes Wapic’s respectable liquidity position and strong risk-adjusted capitalization underpinned by the firm’s improved assets quality. Stemming from these, the company’s was assigned a stable outlook as its overall rating.

AM Best was cautiously optimistic that the rating assigned to Wapic, which is contingent on the successful implementation of the company’s corporate strategy will improve in the medium term given the company’s strong execution capabilities.

While this rating affirmed Wapic Insurance’s financial strength and importance to the insurance industry in the West African sub-region, the rating could be noted as one of the immediate impacts of the company’s transformation as a result of its acquisition by Access Bank Plc, and eventual repositioning for optimal performance under the watchful eyes of Aigboje Aig-Imoukhuede, a business leader reputed for his uncommon management acumen and an accomplished turnaround manager.

This implies that Wapic Insurance has the capability to significantly grow its market share and create value for shareholders under the present management.

BALA AUGIE