African Alliance Insurance May Get Fresh N7bn Injection Amid Solvency Margin Deficiency

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By Aduragbemi Omiyale

One of the underwriting companies in Nigeria, African Alliance Insurance Plc, has disclosed that it is almost getting fresh capital of up to N7 billion from “an independent investor” to help shore up its capital base.

The firm revealed this in its audited financial statements for the year ended December 31, 2022, filed to the Nigerian Exchange (NGX) Limited and analysed by Business Post.

The external auditors, Ukwuegbu, Ogbeleje & Co, in their note, pointed out that the existence of African Alliance Insurance was at risk because of a deficiency in its solvency margin.

A solvency margin is the equivalent of a capital adequacy ratio (CAR) in the banking sector, which measures the minimum capital base of an organisation in the financial institution.

In summary, solvency margin is a minimum excess on an insurer’s assets over its liabilities set by regulators, in this case, the National Insurance Commission (NAICOM).

For underwriters operating in the life insurance business in Nigeria, they are required to have a solvency margin of N2 billion, but African Alliance Insurance has a negative solvency margin of N4.04 billion.

In its comments in its report on the financial statements, the auditors said, “Without modifying our opinion, we draw attention to note 5.5 to the financial statements which indicate negative solvency margin of N4.04 billion. This is below the minimum regulatory capital of N2 billion required for a life insurance business.

“The total admissible assets of the company less the net insurance and investment contract liabilities were a deficit of N29.8 billion as of December 31, 2022. These conditions indicate the existence of a material uncertainty that may cast doubt on the company’s ability to continue as a going concern.”

But the company said it has taken some capital management policies to address the issue raised by the auditors, including the “maintenance, as a minimum, of capital sufficient to meet the statutory requirement,” and “maintenance of an appropriate level of liquidity at all times.”

“The company further ensures that it can meet its expected capital and financing needs at all times, having regard to business plans to guarantee its going concern status, forecast and any strategic initiatives,” it added.

The insurance company noted that its “board of directors are at the final stages of concluding arrangement with an independent investor with plans to inject about N7 billion into the company as fresh capital,” noting that “the process involves the conduct of due diligence on the financial statements of the company.” The board also emphasised that the success of this transaction is not under its control and “there is material uncertainty as to the probability that this transaction will succeed.”

A look at the performance of the firm in the fiscal year under review showed that its gross premium written (GPW) shrank by 5.56 per cent to N6.8 billion from N7.2 billion in the 2023 financial year due to lower earnings from its individual life insurance product, as gross premium income slightly moved up to N7.1 billion from N7.0 billion.

In the year, the insurer suffered a loss before tax of N2.9 billion versus a pre-tax profit of N2.2 billion in 2021, just as it closed the period with a net loss of N2.9 billion in 2022 compared with a net profit of N2.4 billion in 2021 fiscal year.

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