AIICO Insurance Plc is again doing the core business of risk underwriting at a loss so far this year after it closed that section of business at a loss of N6.3 billion in 2019. The underwriting loss has rather grown to nearly N11 billion at half-year ended June 2020, doubling on a year-on-year basis.
The volume of underwriting business is growing but underwriting expenses keep overtaking the earnings. The company raked in gross premium income of N29 billion at the end of the half-year operations but like last year, no part of the earnings reached the bottom line. Instead, the company had to look elsewhere to absorb the enlarged underwriting loss.
Inability to achieve a balance between underwriting income and expenses has been the company’s challenge for the fourth straight year. This development which speaks volume of the strategy of the company also raises a red flag as profit possibility within the core operations of the company appears to be out of the way for now.
Total underwriting expenses rose well ahead of net underwriting income at about 40 per cent compared to about 25 percent during the period. The margin by which underwriting income could not meet underwriting expenses grew at half-year. That explains the doubling of underwriting loss year-on-year at the end of June 2020.
Management can however count on the strength to turn the underwriting loss into profit. It was able to absorb the underwriting loss and keep the company profitable so far this year. The strength came from investment and other incomes by the side.
Net fair value gain provided a bail-out with a leap of 83 percent to N11.5 billion year-on-year at the end of June. Investment income also grew by 45 percent to N7.6 billion over the same period.
The improvements however could not prevent the underwriting loss from undermining profit performance. Pre-tax profit was down by 28 percent year-on-year at the end of half year while a tax credit propped up the bottom line to a marginal decline.
AIICO Insurance closed half-year operations in June 2020 with total underwriting expenses of almost N38 billion, which consumed more than all the net earnings of under N27 billion from the underwriting business during the period.
The company has been on a recovery mood since it suffered a major profit drop in 2017. However, the strength to keep profit growth for the third year going was missing at the end of half-year operations.
The company grew net premium income by 25 percent year-on-year to N25.8 billion at half year. This is a slowdown from 37 percent growth at the end of last year, yet quite an impressive performance amidst the economic lockdown.
At N26.8 billion, net underwriting income grew by 25 percent, equally down from 35 percent increase in 2019. Net claims expenses grew by 17 percent to over N14 billion but other underwriting expenses blew up total underwriting expenses to over N37.7 billion at the end of half-year operations.
The result of the company’s underwriting business at the end of June 2020 is a huge loss of N10.8 billion, already more than the N6.3 billion underwriting loss incurred for the entire 2019 financial year.
The company was nevertheless able to rise from the underwriting loss to build profit at half-year. The linking bridge from underwriting loss to profit was provided by fair value gains – which rose by 83 percent to N11.5 billion and investment income that grew by 45 percent to N7.6 billion over the review period.
The increases provided the funds to overwrite the huge underwriting loss, cover total operating cost in excess of N6 billion and still leave a pre-tax profit of N2.2 billion. An exceptional growth in finance expenses from N181 million to over N2 billion over the review period pushed total operating cost up by over one-half.
The company’s huge investment portfolio has expanded further from N127 billion at the end of last year to N183 billion at the end of June 2020. The portfolio consists largely of fixed income government and corporate bonds that yield on schedule irrespective of the state of the financial markets.
A tax credit of N616 million enabled the company to build an after-tax profit of under N2.8 billion at the end of June 2020. This is a marginal decrease year-on-year. The company lifted after-tax profit by 88 percent to N5.9 billion at the end of 2019.
AIICO Insurance earned 40 kobo per share at the end of half-year operations against 41 kobo per share in the same period in 2019. It closed the 2019 operations with earnings per share of 83 kobo.
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