BusinessDay 12 Dec 2017

Tuesday 12 December 2017 C002D5556 BUSINESS DAY 13
COMPANIES
& MARKETS
Company news analysis and insight
ADDAX produces
425m barrels of
crude oil in 19 years
P 14
Zenith General Insurance is efficient
as combined ratios remain favorable
...Posts N4.43bn profit in FY 16
BALA AUGIE
Zenith General Insurance
Company
Limited’s favorable
combined ratio in
an industry fraught
with huge management expenses
validates the insurer’s
efficient underwriting capacity.
For the year ended December
2016, the Nigerian insurer’s
combined ratio (CR) of
62.70 percent, though higher
than the 56 percent recorded
in 2015, is lower than the 100
percent threshold.
The CR is calculated by
taking the sum of incurred
losses and expenses and then
dividing them by earned premium.
The ratio is typically expressed
as a percentage. A
ratio below 100 percent indicates
that the company is
making underwriting profit
while a ratio above 100 percent
means that it is paying out
more money in claims that it
is receiving from premiums.
Zenith General Insurance
operating expenses ratio increased
to 26.02 percent in
December 2016 as against in
the period under review, from
24.80 percent recorded the
previous year.
The Nigerian insurer’s
operating expenses are not
overwhelming revenues as
it are with most firms in the
industry where huge management
expenses are eroding
profitability.
The cumulative management
expenses ratio of the 43
firms that have released 2016
audited financial statement
on the website of the National
Insurance Commission (NAI-
COM) stood at 83.41 percent,
which means they have spent
N83 on operating expenses
for every N100 of premium
income generated.
Experts attribute huge operating
expenses to the acquisition
of new technologies,
energy costs, and salaries of
highly skilled workforce. They
however said it is imperative
for firms to control costs in
order to bolster margins.
“We are trying to cut down
on management expenses;
however, there are costs you
cannot control. The cost of diesel
oil to power head office and
branches is on a high side. Personnel
costs are rising because
we trying to recruit talented
staff,” said Jide Orimolade,
managing director and CEO of
Law Union Rock Insurance Plc
“Companies should try
to put cost control in their
front burner and see how expenses
can go down as profit
margin continues to remain
suppressed,” said Orimolade.
Zenith General Insurance
falling Net Premium Income
(NPI) /Shareholders’ fund suggests
headroom for otherwise
known as premium to surplus
ratio gives headroom for NPI
growth.
The Nigerian insurer’s premium
to surplus ratio fell to
31.19 percent in December
2016 from 37.50 percent as at
December 2015.
In general, a low premium
to surplus ratio is considered
a sign of financial strength
because the insurer is theoretically
using its capacity to write
more policies.
However, a low ratio may
also arise when an insurer is
not charging enough premiums
for its policies. A higher
premium to surplus ratio indicates
that the insurer has lower
capacity. When premiums increase
without a corresponding
increase in policyholders’
surplus, the capacity of the
insurer to write new policies
is decreasing.
Analysts are of the view
that a possible consolidation
will strengthen Zenith General
Insurance’s balance sheet and
expansion plans.
The Nigerian insurer’s improved
ratios make it a possible
target by foreign investors
as analysts foresee a lot
of acquisitions in the industry
next year.
Further analysis of the financial
statement of Zenith
General Insurance shows net
premium income spiked by
2.28 percent to N11.18 billion
in December 2016 from N10.93
billion as at December 2015.
Loss ratio otherwise known
as claims ratio increased by
44.80 percent in December
2016 as against 38.60 percent
as at December 2015.
Claims expenses were up
12.50 percent to N3.33 billion
in December 2016 as against
N2.96 billion as at December
2015.
Zenith General Insurance
has a total shareholders’ fund
of N23.33 billion as at December
2016, which represents a
14.77 percent increase from
2015 figure of N20.31 billion.
Egypt annual inflation rate slows as currency effects fade
Egypt’s headline inflation
rate rose at its
slowest pace in nearly
a year in November
as the effects of a currency
flotation began to fade, raising
expectations that the central
bank would soon begin to cut
interest rates.
Urban consumer prices
rose 26 percent in November
compared to 30.8 percent a
year earlier, according to the
official statistics agency, CAP-
MAS. The month-on-month
inflation rate eased to 1 percent
compared to 1.1 percent in
October. Food and beverage
prices, which make up the
single largest component of
the price basket, rose by 32.3
percent.
Officials have said they
expected the inflation rate to
ease from highs in the mid-30s
as the base effects of the currency
flotation begin to wear
off. The Egyptian pound has
halved in value against the
dollar since most currency
controls were lifted, pushing
up prices in the importdependent
economy where
millions live in poverty.
“This is generally within
expectations. I think it is likely
that the central bank will begin
cutting rates but not at the
next meeting in December, at
the one after,” said Reham El
Desoki, senior economist at
Arqaam Capital in Cairo.
El Desoki said she expected
the central bank to cut policy
rates by about 500 basis points
over the course of 2018, but to
follow a more dynamic policy
in response to price shocks,
raising and dropping rates as
it guides inflation toward its
target.
The central bank has repeatedly
raised interest rates since
the flotation to damp soaring
prices, but faced criticism from
business leaders who said the
high cost of borrowing would
stifle growth.
The central bank held the
benchmark rate at 18.75 percent
at its last meeting in October
and has set an inflation
target of 13 percent, plus or
minus three percentage points,
for the fourth quarter of 2018,
and single digits thereafter.