AIICO Insurance Proposes Huge Investments in Life Business

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Ebere Nwoji

Life insurance specialist, AIICO Insurance Plc, has said that it will consolidate on its huge investments in life business operations in order to meet its obligations to policy holders.
To this effect, AIICO insurance, said it has obliged itself to efficiently invest its earned premium in a way that will enable it meet its policy holders’ expectations.

The company, which is one of the first life insurers to receive both insurance and pension sectors regulators’ nod to resume underwriting of annuity business, said contrary to fears that annuity business would drop due to the short break in the business underwriting by life insurers, the reverse is the case as the annuity business which, is a strategic business for the company is on increase despite the short break occasioned by the regulators’ directive last year.

The company however said it is operating the Annuity Business with caution.
AIICO Insurance Executive Director Operations, Tunde Fajemirokun, speaking on the company’s performance this year and plans ahead at the quarterly media parley organised by the company in Lagos said: “The importance of investments to our life business operations thus becomes apparent – we must invest the premiums efficiently to make sure we can meet our obligations. Investment income is therefore an important indicator of performance in a life insurer and trading in a volatile investment climate such as ours is not only recommended, it is wise.”
On the financial reports of the company for the outgoing year, Fajemirokun explained that the temptation with evaluating the performance of a composite insurance company like AIICO is to paint all its businesses with the same brush.

According to him, the company is made up of diverse businesses, some of which can be evaluated using common metrics.
“Others, like our life business require some understanding about life insurance trends and the business model of the company being evaluated.
AIICO has a 54-year history as a life insurer, providing a variety of savings, investment-related and endowment products to our clients. Very often, these products are long-term in nature with some having tenors as long as 25 to 30 years. Profits are most often realised over time, from underwriting and investment operations. Some of our liabilities are also sensitive to interest rates, growing when interest rates decline and reducing when they rise”, he explained..
According to him, these movements are usually recognised on the income statement as “changes in unearned premiums” or “changes in life funds.”

He said in its financial statements, the company recognises the movements as changes in unearned premiums, a situation which he said affects earned premiums.
“We can see that using the combined ratio, a short-term measure of performance, across the group ignores several key aspects such as the peculiar nature of our life business and the importance of investments to our operations. It also ignores the effect of interest rates on profitability in our life business, which represents over 60 percent of our gross written premiums. In 2017, gross premiums earned in the life business reduced 25 percent to N10 billion from N13.3 billion in 2016 despite the 5 percent growth in premiums.

The benefits in our life business, which make up 76 percent of total claims recorded in 2016 grew 44 percent compared to 2016. This is because our life business is much larger today than it was in 2016. The timing of these benefits payments is largely predetermined based on the contract with our policy holders. This is another area where life and general insurance diverge – in non-life, the timing of these cash flows are uncertain”, he explained.