NEM Insurance’s impressive earnings story at half-year suffered a setback in the third quarter ended in September 2020. The risk underwriter suffered a loss of over N446 million in the quarter, which left the year-to-date profit figure virtually unchanged from the first quarter mark.
The company’s management was able to prevent a profit drop last year with a tax credit of over N475 million. This year, a profit drop looks inevitable for NEM Insurance at full year.
The loss in the third quarter was spurred by net claims expenses, which multiplied more than three times quarter-on-quarter to N2.2 billion. That plus underwriting expenses of almost N1.4 billion resulted in an underwriting loss of over N264 million.
The loss could not be fully remedied by the investment income of N248 million for the quarter. Management expenses of N546 million for the quarter were therefore largely uncovered.
The general risk underwriter has lost the strength in recovery it managed to put up last year. Gross premium income was down in the third quarter, which slowed down the year-on-year growth at the end of September 2020.
At N15.6 billion at the end of the third quarter, gross premium income increased by 10 per cent year-on-year. This is a sharp slowdown from 26 per cent growth at the end of the first quarter. A 9 per cent increase in reinsurance expenses during the period left net premium income flat at N10.4 billion at the end of the period.
With a moderate increase in fee and commission income, the company posted a net underwriting income of roughly N11.5 billion for its nine months of operations.
The most significant event in the company’s operations during the review period is the upsurge of 54 per cent in net claims expenses year-on-year to N4.2 billion. The increase followed the third quarter upshot that accounted for 53 per cent of the net claims figure for the three quarters of the year.
The high growth in claims expenses was moderated slightly by a 4.5 per cent decline in underwriting expenses to N4.7 billion. This represents a cost-saving area for the company this year compared to an increase of 29 per cent in underwriting expenses in 2019.
The decline in underwriting expenses could not however counter the upsurge in net claims expenses during the period. An underwriting loss in the third quarter overturned the initial growth in underwriting profit into a drop at the end of the third quarter.
At N2.6 billion, underwriting profit dropped by 31.5 per cent year-on-year at the end of the third quarter, representing an accelerated drop from a decline of 6 per cent in underwriting profit at the end of 2019.
The company has lost the improved cost-income balance in the previous interims. Underwriting income had been growing well ahead of total underwriting expenses but the position reversed at the end of the third quarter.
Total underwriting expenses rose by 16.7 per cent to N8.9 billion against a flat position of net underwriting income at N11.5 billion. This explains the sharp drop in underwriting profit during the review period.
Some respite came from a 30 per cent growth in investment income, which rose by over 30 per cent year-on-year to N766 million at the end of the third quarter. Some strength also came from other income but the improvements could not remedy the drop in underwriting profit.
NEM Insurance closed the third quarter operations with an after-tax profit of N1.1 billion, virtually at par with the profit of N1.06 billion in the first quarter. The figure is a drop of 45 per cent year-on-year.
The full-year outlook has shifted from the initially elevated status to a downswing. Last year, the company was able to grow after-tax profit by 17 per cent to N2.3 billion – recovering from a drop of 27 per cent in after-tax profit in 2018. Profit drop looks likely for the company at the full year, 2020.
NEM Insurance earned 21 kobo per share at the end of September 2020, dropping from over 38 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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