Cornerstone Insurance Plc is reaping yet another windfall for the third straight year that has again powered growth of the bottom line at the end of half-year trading in June 2020. This time, it is net foreign exchange gain that multiplied sixty-two and half times year-on-year to N688 million at half-year.
The company had built big profits in the past two years through major windfalls. In 2018, the share of profit from the joint venture gave the company a windfall of close to N3 billion that produced a big turnaround.
In 2019, it was net trading income of N1.3 billion, representing gain on disposal of the company’s investment in MTN shares. The gain was the most significant development that extended a 14.6 percent increase in underwriting profit to 36 percent growth in after tax profit at the end of the year.
These gains have enabled the company to paper over its underlying weakness in the core business of underwriting and put on a good face of wellness. Management has successfully filled the big equity hole of over N4 billion in the balance sheet created by a huge loss in 2017.
A retained deficit of N1.6 billion at the beginning of last year shifted to retained earnings of N1.4 billion at the end of the year, rising further to N2.2 billion at the end of June 2020. That has reinforced the company’s equity standing to over N16 billion unimpaired by losses of which N7.4 billion is paid-up.
The core business of underwriting continues to lack the strength to drive growth in the current financial year but the new windfall is again covering the gap. The difference is the doubling of after tax profit at half year against a 52 percent fall in underwriting result. Investment and other incomes nearly doubled at over N2 billion at the end of half year operations.
The company recorded drops all the way from net premium income to underwriting profit for the half year. This was caused by the doubling of annuity life fund, increase in reinsurance expenses and more than four folds jump in outstanding claims.
The underwriting business isn’t providing the strength needed to drive earnings growth in the current year. Against an increase of 14.4 percent in net premium income last year, a drop of almost 16 percent year-on-year was recorded at the end of June 2020.
The drop follows the doubling of annuity life fund at N649 million and an increased incursion of reinsurance premium into gross premium income. Despite a rise of close to 30 percent in fees and commissions, net underwriting income still went down by about 9 percent to N3.2 billion.
Net claims expenses grew by over 17 percent to N1.7 billion, reflecting mainly the upsurge of 336 percent in outstanding claims to N1.7 billion. An increase of 21 percent in recoverable insurance claims moderated the increase in net claims expenses at the end of the period.
Net underwriting expenses increased slightly over the review period alongside the growth in net claims expenses against the drop in net underwriting income. That sent underwriting profit falling by 52 percent to N509 million over the review period.
Investment and other income lines constitute the life wire of Cornerstone Insurance’s earnings performance so far this year. All the income lines were signed up at the end of half-year operations.
Investment income from financial assets grew by 47 percent to over N810 million over the period. More than 62 percent of the figure was realised within the second quarter – indicating good prospects for further growth in investment income in the second half.
Fair value changes in financial assets grew by close to 6 percent to N456 million, already quite close to the full year figure of N476 million last year. The big boost for the current year so far is net exchange gain of N688 million that advanced from only N11 million in the same period in 2019.
The exchange gain is well over the underwriting profit of N509 million for the first half of the year. Operating income virtually doubled at over N110 million during the half year.
Cornerstone Insurance closed the half-year operations in June 2020 with an after-tax profit of N1 billion – nearly double the profit of less than N502 million in the same period last year.
The company doubled earnings per share from 3 kobo in the same period last year to 6 kobo at the end of June 2020.
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