outstanding ratio is considerably very high when compared to the industry average; this
hinders the effective use of company assets.
RITCORP, NIC, & AIC ratios are high when compared to the industry average, SLICO
is slightly below the industry average but needs a downwards shift. However, there is
still room for improvement in terms of insurance companies making better use of their
premiums, as evident by MAGIC, Transworld, and Marine & general when compared to
2004 ratios.
Investment Income as a % of Total Investment
This measures the investment income as a percentage of total investments. The trend
of investment in Sierra Leone reflect that most companies recorded very
impressive investment returns in 2004 than 2005.On the other hand MAGIC,
and M&G recorded returns well below the industry average of 8% SLICO did
not invest and no returns were generated.
Gross premium to equity ratio
The premium to equity ratio attempts to assess the capital adequacy of the insurance
companies.
It measures how capital is available to support the premiums underwritten by a
company. So for e.g. a gross premium to equity ratio of 3.5 means that Le1 of capital
support as much as Le3.5 of gross premium.
The benchmark or industry best practice is however pegged at 2. This means that a
ratio significantly above 2 indicates that the company is overtrading. Hence, a ratio that
is well below 2 means that the company is not making adequate use of its capital.
It could be seen that SLICO, NIC and RITCORP are certainly undercapitalized
as far as their level of business is concerned. On the other hand, it can be said
that Transworld is over trading. Setting the pace in the industry on the overall is
IIC and AIC who have a favourable ratio. Companies were adviced adequately
to make use of their capital efficiently to support premium underwritten.
Capital to liabilities Ratio (Leverage)