Custodian and Allied Vs. NEM InsurancePlc: On the same level


By Folakemi Emem-Akpan

Our analysis of these two insurance companies shows that Custodian and Allied is the bigger of the two companies. It surpassed its contemporary in terms of gross premium written, total revenue, profit made, assets deployed and equity employed.

Despite this disparity in size, our analysis shows that both insurance companies were more evenly matched in terms of profitability ratios for the 2016 finance year. Of the seven profitability ratios we examined, Custodian and Allied took the lead in three while NEM Insurance won in four.

Gross premium growth rate

This was the first ratio in which Custodian and Allied came out tops. For the year, it was able to grow its gross premium written by29.2 per cent to N28.4 billion. This 29.2 per cent growth rate is compared to a growth rate of 18.7 per cent in the prior year, and a decline rate of 1.3 per cent recorded in 2016 by NEM Insurance.

This means that while Custodian and Allied was able to increase the level of its gross written premium during the course of the year, NEM recorded  decline.

Pre tax profit growth rate

Although Custodian and Allied gross premium written faster than NEM Insurance did, it was not able to grow its pretax profit as quickly as NEM Insurance did.

Custodian and Allied’s pre tax profit growth rate was 28.9 per cent, better than that of the preceding year while NEM Insurance’s pre tax profit growth rate grew by a much higher 258.7 per cent instead.


For the 2016 year, NEM Insurancewas the winner in terms of return on assets (ROA). ROA for the year was 14.8 per cent, up from 4.8per cent in the prior year.

This means that of every N100 worth of assets deployed by NEM Insurance, N14.80 accrued to it as pre-tax profit while Custodian and Allied recorded a lower N10.90 pre-tax profit from every N100 worth of assets employed.


As regards ROE, Custodian And Allied’s ROE was 17.8 per cent, and this fell short of the 24.6 per centthat NEM Insurancerecorded. This makes it one of the ratios in whichNEM Insurance led its competitor.

Expense ratio

This was another of the ratios in which Custodian and Allied came out tops. Expense ratio for insurance companies should be as low as possible, and Custodian and Alliedhad the low ratio out of the two insurance companies examined.Custodian and Alliedhad an expense ratio of 8.7 per cent, lower and better than NEM Insurance’s ratio of 34.6 per cent.

Loss ratio

This is another ratio that should be kept as low as possible, as a consistently high loss ratio can indicate that an insurer is selling their insurance too cheaply. NEMwas the winner in this regard, having a loss ratio of 34.6 per cent, lower and better than NEM Insurance’s 46.8 per cent result.

Operating ratio

This ratio is a combination of the expense ratio and loss ratio. A combined ratio below 100% means an insurance company is operating at an ‘underwriting profit’ – a profit before adding the returns from investing customers’ premiums. On the flipside, a combined ratio of more than 100% represents an ‘underwriting loss’, which means an insurer is reliant on investment income to square the ledger. So the idea is to have an operating ratio as far below 100 per cent as possible. In this regards, Custodian and Alliedwas the winner, having an operating ratio of 55.5 per cent, as compared to NEM Insurance’s 66 per cent result.

While both insurers are operating at an underwriting profit, Custodian and Alliedseems to be doing a better job of it.

In conclusion

It is imperative to note that both insurers did not do badly in terms of profitability and growth when their results are also analysed in a stand-alone analysis.


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