AIICO Insurance Plc sustained profit improvement for the third straight year at the end of 2020, hitting its target of ‘matching or exceeding its preceding year’s profit. That was a promise that Babatunde Fajemirokun, the company’s managing director made to InsideBusiness in our interview with him at the end of his company’s third quarter operations.
It is a promise fulfilled by the leadership of the composite risk underwriter in an otherwise most challenging year for corporate performance. The company closed the 4th quarter of the 2020 financial year with an after tax profit of over N7 billion, which is a 20 percent increase over the closing profit of N5.9 billion in 2019.
Fajemirokun had expected a strong finishing in the final quarter with improved contributions from subsidiaries. This was realised with an after tax profit of N1.7 billion realised in the 4th quarter. That topped up the third quarter profit figure of N5.4 billion to N7.1 billion at full year.
The highpoints of the company’s performance in 2020 include a strong growth in business volume with increases of 21 percent in gross premium income and 20.6 percent in net premium earned. How the company was able to grow the business that much in defiance of economic lockdown and the Covid-19 pandemic speaks of innovative approaches in service delivery.
According to Fajemirokun, AIICO developed innovative products designed to meet the needs of customers at affordable prices. The strategy, he said, is to enable clients still see the value in insurance products regardless of the state of the economy and make it possible for them to afford to pay premiums.
Another high point for the company in 2020 is a 38 per cent growth in investment income, which is a major factor in delivering the profit figure recorded in the year. The biggest favourable event in the year is an exceptional growth in net fair value gains, which wiped off underwriting loss, absorbed management expenses and produced profit for shareholders.
On the downside of the year is a strong growth of 69 percent in total underwriting expenses – about three and half times the increase of less than 20 percent in net underwriting income. That left a huge underwriting loss for the year.
However, management expects that the imbalance between net underwriting income and total underwriting expenses will be addressed in the current financial year. Its forecast for the first quarter shows that net underwriting income will exceed total underwriting cost, shifting the company’s position to a modest underwriting profit at the end of March 2021.
AIICO Insurance closed the fourth quarter of 2020 financial year with gross premium income of N60.7 billion, which is an increase of 21.4 percent for the year. Net premium income also grew by 20.6 percent to N52.8 billion during the year.
With fee/commission income, the company pushed net underwriting income by close to 20 percent to N54.7 billion. Rising claims and underwriting expenses did not let the company convert the revenue into profit in the year. Changes in life and annuity funds led a growth in total underwriting expenses to over N90 billion at the end of the year.
The result is an underwriting loss of over N35 billion but management rode at the back of investment earnings to build profit for shareholders in the year. Investment income and net fair value gains provided upturns big enough to overwrite the net underwriting loss, cover total operating cost of N7.5 billion and yet improve profit performance.
Net fair value gains multiplied more than 21 times to over N35 billion, almost absorbing the entire net underwriting loss for the period. Investment income grew by 38 per cent to over N14 billion in the year.
Investment income is yielded by the company’s large investment portfolio it built from N127 billion at the end of 2019 to over N185 billion at the end of 2020. The portfolio consists largely of fixed income government and corporate bonds.
AIICO Insurance closed the 2020 financial year with a pre-tax profit of N6.2 billion – which it topped up with tax credit and profit from discontinued operations to achieve an after tax profit of N7.1 billion for the year.
The company earned 43 kobo per share at the end of 2020 operations, down from 83 kobo per share in the same period in 2019. The drop reflects an increase in share capital and the resulting increase in the volume of shares in the year.
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