Standard Alliance near insolvency as with stack of losses

Standard Alliance Insurance Plc lacks financial strength to mitigate or handle or write bigger risks and ensure further development of business, raising concerns about the going concern of the beleaguered insurer.

For the year ended December 2020, Standard Alliance’s total admissible liabilities of N9.06 billion exceeded total admissible assets of N7.65 billion, resulting in a negative solvency margin of N8.77 billion, according to calculations by MoneyCentral

It must be noted that the regulatory minimum solvency for composite business stands at N5 billion.

The solvency margin is the extra capital the companies must hold over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims. It is also defined as the difference between assets and the expected value of liabilities.

Lower Solvency would also result in undercutting of premium rates as to compete in the market and it may slow down its business growth due to slow rate of business expansion.

This means Standard Alliance doesn’t have enough cash t0 cover claims, which leaves it in a precarious situation.

The deteriorating solvency position stems from receding earnings as claims expenses are growing faster than premium income.

For instance, gross premium written dipped by 60.34 percent to N962.57 million in December 2020 from N2.42 billion as at December 2019.

Net premium income reduced by 75.21 percent to N574.10 million in the period under review from N2.31 billion the previous year.

Also, the company paid N2.17 billion claims to policyholders, but the amount is 2.25 times gross premium written, which validates a bloated combined ratio.

As a result of an unfavorable underwriting environment and huge debts, Standard Alliance posted an underwriting loss of N1.57 billion as at December 2024, from a profit position of N1.14 billion recorded the previous year.

It posted loss after tax of N2.17 billion in December 2020 from a loss position of N1.21 billion in 2029.

To discharge all obligations owed, the insurer has unveiled plans to convert its N12 billion debt into equity as part of a broader capital restructuring strategy.

The company mulls for a potential corporate reorganisation, which may involve transforming into a holding company, divesting business units, or engaging in mergers and acquisitions.