Coronation Insurance, formerly Wapic Insurance Plc used associate profit to put on a profit dressing at the end of the third quarter operations in September 2020. The nine months of operations ended with a marginal operating profit of N53 million but share of profit of associate of over N1 billion changed the company’s earnings story for the period.
The risk underwriting firm is thriving on associate profit for the third straight year. With it, it has already multiplied last year’s closing profit figure four times at the end of the third quarter. Associate Profits is profit from earnings on shareholding in a company that one is associated with
The company faced increased pressure from underwriting expenses in the third quarter with the swelling of claims expenses quarter-on-quarter. Net claims expenses more than doubled in the quarter and total underwriting expenses rose by 44 percent to N1.9 billion against flat net underwriting income at N2.6 billion.
An underwriting profit of N685 million for the quarter represents a 43 percent drop quarter-on-quarter. Despite a doubling of total investment income to N500 million, the company still lost 18 percent of net income to N1.2 billion over the period.
Moving against the drop in net income, total operating expenses grew by 22 percent quarter-on-quarter to N1.3 billion. This created an operating loss of N136 million for the quarter, which was however remedied by an associate profit of N378 million for the quarter.
The company’s year-on-year performance at the end of the third quarter shows it is defending revenue with an increase in gross premium written and a decline in unearned premium. A stronger growth in reinsurance expenses however left net premium income slightly down at N5.5 billion. With fees and commission income, the company was able to push net underwriting income slightly ahead year-on-year to N7.2 billion at the end of the third quarter.
A sharp growth in claims expenses was largely countered by an equally strong growth in recoverable claims expenses over the period. That permitted a manageable increase of less than 10 percent in net claims expenses to N2.4 billion.
Reinforcement came from a drop of 14 percent in underwriting expenses to N2.1 billion over the period. That led to a marginal decline of 2.5 percent in total underwriting expenses to N4.6 billion at the end of the third quarter.
The marginal decline in total underwriting cost is against a marginal improvement of 1.3 percent in net underwriting income. The company was therefore able to improve underwriting profit by about 9 percent to roughly N2.7 billion at the end of September 2020.
A pleasant surprise continues to come from investment income this year after dropping for the second year in 2019. The company’s portfolio of financial assets has expanded by 49 percent to N13.5 billion over the closing figure in 2019.
Total investment and other income grew by more than 60 percent to N1.4 at the end of the third quarter, which reinforced the improvement in underwriting profit during the review period. The improvements powered a 22 percent growth in net income to over N4 billion at the end of the third quarter.
Then, came the challenge from operating expenses, which grew ahead of net income at 25 percent to claim almost all the net income. That slashed operating profit by 48 percent to a marginal figure of N53 million.
The strength for the company to put up a profit performance came from its share of associate profit of over N1 billion at the end of the third quarter. The company posted an after tax profit of about N864 million at the end of the third quarter. The figure is a drop of 11 percent year-on-year but already more than four times the full year profit figure N214 million in 2019.
A little positive shift at the end of the third quarter is that total operating expenses, which exceeded net income for the past two years, closed slightly below it. This enabled a return from two years of operating losses to the marginal operating profit at the end of the period.
Associate profit, which has provided the saving graces for the company against the operating losses of the past two years, has maintained a strong growth this year at 29 percent at the end of September.
The outlook for the full year indicates that through the operating volatility, associate profit will provide a stabilising force for the company. This would however be grossly inadequate to ensure a decent return to investors, who pumped in N5.9 billion in new money this year through a rights issue.
The company earned over 3 kobo per share at the end of the third quarter against 4 kobo per share in the same period last year.
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