NEM Insurance: Building Up For The Second Year
NEM Insurance Plc is rebuilding profit capacity for the second year after commencing recovery last year from a profit drop in 2018. The company’s first-quarter operations ended in March 2020 produced a pre-tax profit of N1.2 billion – which is 63 percent of its full-year pre-tax profit in 2019.
Profit recovery last year was made possible by a tax credit of over N475 million. That changed a drop of 28 percent in pre-tax profit into an increase of 17 percent in after-tax profit to N2.3 billion. This year so far, the company has seen an increased operating momentum that has strengthened its earnings story from top to the bottom lines.
The outstanding leap of 74 percent in profit contained in the unaudited final quarter report for 2019 melted down to 17 percent in the audited accounts. The tax credit provided the saving grace that prevented a profit drop for the second year in 2019.
The general risk underwriter is however building further on the strength in recovery it managed to put up last year. Revenue is advancing from gross premium written to net underwriting income. This is complemented by investment income – which has turned around from a drop in 2019 to strong growth in the first quarter.
The challenge for the company last year was that total underwriting expenses grew well ahead of net underwriting income at 39 percent to N9.4 billion against 20.5 percent to N13.8 billion. That caused a 6 percent drop in underwriting profit in the year.
The company has redressed the cost-income imbalance in the current financial year. Underwriting income grew well ahead of total underwriting expenses in the first quarter at 16.6 percent compared to 12.4 percent. The shift powered the growth of about 25 percent in underwriting profit in the quarter that flowed down to the bottom line.
An increase of 16 percent in gross premium written to N7.9 billion in the first quarter was enhanced by a drop of 26 percent in unearned premium. The result is an increase of over 26 percent in gross premium income to roughly N7 billion at the end of March 2020.
The rapid growth of 94 percent in reinsurance expenses however slowed down net premium income to 10 percent growth at N4.8 billion. A boost came from fees and commission, which rose by more than three and a half folds to N432 million.
Net underwriting income, therefore, grew by 16.6 percent to over N5 billion at the end of the first quarter. Claims expenses rose by 21 percent to N1.3 billion – well ahead of the 16.6 percent increase in net underwriting income. This was moderated significantly by underwriting expenses – which increased by 7 percent to N2 billion during the review period.
This is a slowdown from a rise of 29 percent in underwriting expenses last year, presenting a big cost saving area for the company in the first quarter. It accounted for strong growth of nearly 25 percent in underwriting profit to N1.9 billion during the quarter.
The first-quarter operations, therefore, saw an upturn in underwriting profit from a decline of 6 percent at the end of 2019. This is a major strength in operations that NEM Insurance has gained in the current year.
A similar upturn was recorded in investment income, which rose by 28 percent to N304 million in the first quarter. The improvements countered a drop of 66 percent in other income and jerked up total income by 25 percent to N2.2 billion at the end of March 2020. Investment income had declined by close to 8 percent to N878 million in 2019.
NEM Insurance closed the first quarter operations with an after-tax profit of over N1 billion, which is an increase of over 24 percent year-on-year. This is an elevated performance for the company for the second year in recovering from a drop of 27 percent in after-tax profit in 2018. Last year, the company was able to grow the bottom line by 17 percent to N2.3 billion with a tax credit of over N475 million.
The company earned 20 kobo per share at the end of March 2020, improving from 16 kobo per share in the same period in 2019. It earned 45 kobo per share for the 2019 operations and paid a cash dividend of 15 kobo per share to shareholders.
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