A change of fortune from a net foreign exchange gain of N179 million to a net loss of N763 million is one major event in the operating story of Cornerstone Insurance Plc in the first quarter.
The development caused a swelling on the cost side of the cost-income balance that slashed after-tax profit for the period by 88 per cent to less than N79 million in the first quarter ended March 2022.
The company’s first-quarter outing this year is a downswing from an upturn of 38 per cent in profit recovery in 2021 after a 46 per cent drop in profit in 2020. The company noted in its report that the net exchange loss resulted from the translation of foreign currency-denominated assets at the closing rate as of reporting date and also from sales of foreign currency denominated assets during the period.
Other cost increases that reinforced the foreign exchange loss include underwriting expenses, which rose by 34 per cent to over N1 billion and personnel expenses which grew by 16 per cent to about N693 million.
The cost increases are against a constrained revenue environment in the first quarter. Though gross premium earned improved by 7 per cent to almost N6 billion in the quarter, reinsurance expenses grew well ahead at 24 per cent to N3.4 billion.
Added to the increase in reinsurance expenses is a negative change of N161 million in annuity life fund, both of which claimed more than the increase in gross premium income.
Net premium income, therefore, went down by 3.5 per cent in the first quarter to N2.7 billion. A drop of over 32 per cent in fee and commission income to N456 million added to the pressure on earnings. This extended the decline in net underwriting income, which went down by 9 per cent to N3.2 billion over the review period.
Some respite came from claims expenses by way of recovery from reinsurers. While gross claims grew by over 28 per cent to roughly N1.7 billion, recoveries from reinsurers multiplied close to five times to more than N622 million. This was supported by a movement in outstanding claims from N73 million to over N280 million over the period.
The positive developments around claims expenses led to a drop of 27 per cent in net claims to N865 million at the end of the first quarter.
The cost-saving from the drop in net claims expenses was however claimed by the increase in net underwriting cost. That again increased pressure on the underwriting result.
Underwriting profit went down by 18.5 per cent to N1.2 billion, reflecting both the earnings constraints as well as the increase in underwriting cost. This detracts from a five-fold jump in underwriting profit to N5.2 billion in 2021.
Another favourable development for the company is strong growth of 77 per cent in investment income, which amounted to N585 million for the first quarter. This is supported by fair value change in financial assets, which overturned from a loss of close to N330 million in the first quarter of last year to N127 million at the end of March 2022.
The gains helped to moderate the decline in underwriting profit and the upshot in foreign exchange loss but could not save profit from diving.
Cornerstone Insurance closed the first quarter operations with earnings per share of 1 kobo, down from 4 kobo per share in the same period in 2021. It earned 17 kobo per share at the end of 2021 operations and has declared a cash dividend of 5 kobo per share.