AIICO Insurance Plc made a surprising turnaround from an underwriting loss of over N35 billion at the end of 2020 to an underwriting profit in the region of N28 billion in the first quarter. This provided the saving grace for the company to absorb a phenomenal growth in net fair value loss to nearly N32 billion during the quarter.
This far exceeds management’s expectation that the existing imbalance between net underwriting income and total underwriting expenses will be addressed this year. Its forecast for the first quarter had shown a return to a marginal underwriting profit.
The movement of large numbers on both sides of cost and income generally cancelled out. But a shift from tax credit to an expense on year-on-year reading lowered the company’s profit figure in the first quarter.
Three major changes in the company’s reserves produced the much needed underwriting profit in the first quarter. One is a positive change of N10.8 billion in life fund, rising all the way from a negative change of N2.6 billion in the same period last year.
The second is a positive change of N14.4 billion in annuity fund against a negative change of N1.1 billion over the review period. The third element of the company’s profit building tripod is a change in other investment contracts from a negative figure of over N975 million to a positive number of N619 million over the same period.
The positive numbers absorbed underwriting expenses of N2.2 billion and produced total underwriting revenue of N12.6 billion for the period in place of total underwriting cost. This is a major turn of events from total underwriting cost of over N14 billion in the same period in 2020. It is the big event that lifted the company’s underwriting result from a marginal loss of N131 million in the same period last year to a profit of N27.7 billion at the end of the first quarter.
However developments on the side of cost didn’t let the underwriting profit flow down to the bottom line. A net loss of N31.7 billion in the value of financial assets consumed more than the underwriting profit. This is against a net gain of N642 million in the same period last year.
This is a reversal of an exceptional growth in net fair value gains last year that enabled the company to produce profit for shareholders. Net fair value gains had multiplied from N1.6 billion to over N35 billion in 2020.
The composite insurer generated net premium income of over N14 billion from the first quarter operations ended March 2021. The figure represents an increase of 6.6 percent year-on-year. An increase in fee and commission income beefed up net underwriting income to N15 billion – which is a 7 percent growth year-on-year.
Rising claims expenses against a drop in claims recoveries presented another major challenge on the side of cost in the first quarter. Claims expenses rose by 26.6 percent year-on-year to N12.6 billion at the end of March 2021.
At the same time claims recoveries from reinsurers went down by 27 percent to N1.6 billion. That jerked up net claims expenses by more than 42 percent to almost N11 billion at the end of the period.
Total underwriting revenue of N12.6 billion in place of total underwriting expenses provided a windfall for AIICO Insurance in the first quarter. It added to net underwriting income of N15 billion to produce an underwriting profit of N27.7 billion for the period.
There was a setback in investment income during the period with a drop of 27.6 percent year-on-year to N2.7 billion. A compensating factor that enabled the company to defend profit in the first quarter came from net realised gains – which multiplied 17 times to close at N4.9 billion for the quarter.
Further support came from other operating income, which rose by 59 per cent to N267 million and a drop of 8 per cent in personnel expenses to N874 million. There was also a complete absence of finance cost that was as much as over N1 billion in the first quarter of last year.
The movements on both sides of costs and incomes summed up to a pre-tax profit of roughly N1.6 billion. With a shift from tax credit to a tax expense, the company closed the first quarter with an after tax profit of N1.5 billion, dropping from N1.9 billion year-on-year.
The company earned 10 kobo per share at the end of the first quarter operations, down from 27 kobo per share in the same period in 2020.
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