Sonarwa General Insurance Company Ltd experienced a significant decline in profitability in 2023, reporting a loss of Rwf879 million compared to a profit of Rwf652 million in the previous year. This downturn occurred despite increases in gross written premiums and investment income. The decline in profitability could be attributed to a substantial increase in insurance service expenses, increased expenses from reinsurance contracts, as well as rising insurance finance expenses. The company recorded a 71 per cent increase in insurance service expenses to Rwf6.5 billion. These are costs directly related to providing insurance services to policyholders, such as claims paid out and policy administration expenses. While Sonarwa did not indicate exactly what might have led to an increase in service expenses, this could have been driven by higher claims or rising costs in various sectors such as auto repairs. The claims ratio increased by 4 percentage points to 72 per cent, indicating that the insurer paid out a significant portion of its premiums in claims in 2023 compared to the prior period. The firm’s net expenses from reinsurance contracts held – costs associated with purchasing reinsurance coverage, minus any benefits received from those reinsurance contracts – increased by 36 per cent to Rwf1.5 billion. As a practice, insurance companies transfer portions of their risk portfolios to other parties (reinsurers) to reduce the likelihood of paying a large obligation resulting from an insurance claim. On the other hand, Sonarwa’s net insurance finance expenses – financial costs or income associated with insurance contracts over time – rose by 239 per cent to Rwf772 million in the period under review. The dramatic increase in net insurance finance expenses, which may partly be blamed on higher insurance liabilities, is particularly concerning because it's growing much faster than the company’s insurance liabilities or gross written premiums. According to the company’s financials, insurance contract liabilities grew from Rwf7 billion in 2022 to Rwf10.2 billion in 2023, a 44 per cent increase. This growth in liabilities would lead to higher finance expenses. ALSO READ: Why Sonarwa acquisition deal hit a snag Sonarwa is not the first insurer to post losses. Sanlam General Insurance made an underwriting loss of Rwf459 million in 2023, with motor vehicle insurance accounting for the bulk of the loss. “Increasing fraudulent cases coupled with the high cost of motor vehicle spare parts also led to the heavy underwriting losses,” the company’s then acting CEO, Felix Ndatsinze told The New Times. Sanlam also attributed the underwriting loss to higher inflation and foreign exchange losses. Inflation reached an all-time high in January last year. Headline inflation started at 20.7 per cent in January 2023 before starting to come down up to 6.4 per cent by the end of the year. The US dollar, on the other hand, appreciated by 18.05 per cent against the Rwandan franc in 2023. The two factors led to an increase in Sanlam’s claims cost and impacted the company’s ability to generate more income. ALSO READ: Sanlam posts Rwf459m in underwriting loss in 2023 Premiums, investment income Sonarwa’s gross written premiums, which represent the total amount of insurance premiums the firm collected before deducting reinsurance premiums, grew by 42 per cent in the year under review, suggesting a positive trend in the company’s core insurance business. At the same time, investment income showed positive growth, increasing by 21.3 per cent to Rwf2.6 billion in the same period. Total assets grew by 16 per cent to almost Rwf26 billion. Still, the liquidity ratio declined 17 percentage points to 57 per cent, suggesting that the insurer may be struggling with liquidity challenges. The insurer was, however, well capitalised with the capital adequacy ratio standing at 311 per cent as of December 2023. While still solid, it decreased significantly from 546 per cent in 2022. Sonarwa currently has a network of 63 agents and operates 19 branches across the country, half of which are based in the City of Kigali. Sonarwa is owned by the Rwanda Social Security Board (RSSB), which controls 79.21 per cent of the shareholding, with the rest of shareholding spread among Nigerian-based Industrial and General Insurance Plc (15.96 per cent), Agaciro Development Fund (1.61 per cent), Magerwa Ltd (1.61 per cent), and Access Bank Rwanda Plc (1.61 per cent). Both RSSB and Agaciro, owned by the Rwandan government, contributed Rwf2,085 million and Rwf34 million, respectively in 2022 to increase their share capital in Sonarwa, the insurer revealed in their latest financials.
