Cornerstone Insurance Plc expects a rebound in the final quarter from a third quarter loss that halted its windfall-driven profit advance in the 2020 financial year. The company hopes to generate an after tax profit of N611 million in the final quarter – a big turnaround from a net loss of N76 million in the third quarter.
The loss in the quarter lowered its year-to-date profit figure from N1 billion at half year to N925 million at the end of September 2020. That marked a major change in fortunes for the company from doubling profit at year to losing two-thirds of profit at the end of the third quarter.
Net foreign exchange gain that was the profit growth driver at half year, turned into a loss in the third quarter. A net foreign exchange loss of N70 million occurred in the third quarter, which slashed the half year gain of N688 million to N618 million at the end of the third quarter.
Also, a major change in the annuity life fund in the third quarter weakened earnings all the way from net premium earned to underwriting profit. A strong growth in investment income was more than countered by a sharp drop in gains in financial assets. The biggest blow in the third quarter came from a net impairment loss of N640 million that was completely absent in the same period in 2019.
With an increase in fees and commissions, the company posted net underwriting income of N4.7 billion at the end of the third quarter, which was a drop of 10 percent year-on-year.
The company’s underlying weakness in the core business of risk underwriting worsened at the end of the third quarter, as the windfall that had been covering the gap also faltered. Changes in annuity life fund and an increase in reinsurance expenses prevented an increase in gross premium earned from flowing down to net premium income.
With a strong growth in insurance claims recovered, the company was able to limit the increase in net claims expenses at 10 percent to N2.4 billion. Net underwriting expenses was flat at N1.6 billion but underwriting profit still fell by more than one-half to N714 million at the end of the third quarter.
Investment income maintained its strong growth in the third quarter at 45.5 percent to close at N1.3 billion for the nine months. Fair value changes in financial assets amounted to N1.1 billion at the end of September 2020, down from more than N3 billion in the same period in the preceding financial year.
The prospects remain good for further growth in investment income in the final quarter – when the company’s forecast indicates investment earnings of N695 million.
Despite the drop in net exchange gain to N618 million, the figure still represents a big windfall in the year against about N45 million in the same period in 2019.
Cornerstone Insurance closed the third quarter operations in September 2020 with an after tax profit of less than N925 million – down from over N2.8 billion in the same period in 2019.
With the expected profit of N611 million in the final quarter, the company hopes to close the 2020 financial year with after tax profit in the region of N1.5 billion. That will still be a profit drop of 63 percent from the closing profit of N4.1 billion at the end of 2019. It will also be the company’s lowest profit figure in three years.
The company’s earnings per share at the end of the third quarter remains in the region of 6 kobo it reported at half year. The full year expectation is 10 kobo per share compared to 28 kobo at the end of 2019.
The impact of the profit drop between June and September is a decline in retained earnings from N2.2 billion to N1.9 billion over the period. The company’s equity standing is maintained at over N16 billion unimpaired by losses of which N7.4 billion is paid-up.
Over the nine months of the 2020 financial year, the company grew the size of the balance sheet by N4.5 billion to close at roughly N40 billion at the end of September 2020. The key growth drivers are cash-based assets of close to N13 billion, financial assets in the region of N15 billion and reinsurance assets of under N7 billion.
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