AIICO Insurance Profit Plunges 89% In Q2, Boosts H1 Profit With Investments’ Sale.

AIICO Insurance Plc saw a disappointing second quarter in which profit fell by 89 per cent year-on-year to N185 million and the operating speed with which it built N4.7 billion profit in the first quarter halted.
 
With the strong first quarter, however, the company beefed up the profit of N2 billion from continuing operations at the end of half year with a profit of N2.9 billion from the sale of its associate investment in AIICO Pension Managers. The mixture produced N4.9 billion profit the company has reported as per the half-year interim financials made up to June 2022.

The company’s challenges in the second quarter came from four major operating angles that jerked up underwriting expenses and dried up underwriting profit. These include a quarter-on-quarter drop of 75 per cent in claims recoveries from reinsurers to N954 million against a decline of 14.8 per cent in gross claims expenses to N11.7 billion over the same period.

Another development is the swelling of negative changes in life funds from only N503 million to N2.8 billion quarter-on-quarter. A similar development in changes in annuity funds shifted numbers from over N2 billion to negative N301 million over the same period.

Also, a negative change of N176 million in other investment contracts multiplied more than three and half times to N648 million quarter-on-quarter.

The effect of these developments is an increase of 56 per cent in total underwriting expenses for the quarter to N17.5 billion. This compares to a 16 per cent improvement in net underwriting income over the same period to less than N18 billion.

The outcome is a drop of about 88 per cent in underwriting profit quarter-on-quarter from N4.3 billion to N528 million in the second quarter. A loss of N517 million from discontinued operations in the second quarter consumed much of the N702 million profit from continuing operations earned in the second quarter.

The half-year position for the company shows that the profit figure is already at par with the full-year profit of N4.9 billion the risk underwriting company earned in 2021. Profit from the disposal of associate investment has formed a major part of the company’s profit since last year.

As much as N2.4 billion or nearly one-half of the profit reported for the 2021 operations came from partial disposal of the company’s investment in the pension company. The proportion has increased to 59 per cent at the end of half-year trading in 2022.
The inflow from discontinued operations helped to push up the bottom line from N3.2 billion in the same period in 2021 to N4.9 billion at the end of June 2022 – an increase of 53 per cent year-on-year. That has also pushed forward a possible sharp drop in profit in a year without a windfall.

Despite the profit from the sale of the investment, the company found new strength amidst some challenges with which it lifted profit from continuing operations by a clear 133 per cent to N2 billion at the half year.

AIICO Insurance gained strength from a major improvement in investment income – which grew by 35.5 per cent to stand in excess of N8 billion over the review period. This is a major rebound from a negative investment income of N16.6 billion in the 2021 financial year.

The company closed the half-year operations with a net premium income of N34 billion, improving by 16.6 per cent year-on-year. Gains in fees and commissions added up to a net underwriting income of N35.5 billion at the half year.

There was a drop of 9.7 per cent in claims expenses to N23.8 billion, which was followed by a drop of almost 64 per cent in claims recoveries to less than N2 billion. This resulted in a moderate growth of 4 per cent in net claims expenses to N21.8 billion over the review period.

The cost saving from net claims expenses was more than claimed by a long jump in total underwriting cost from a positive N1.5 billion in the same period last year to over N35 billion at the end of half-year operations in June 2022.

The increase reflects changes in life and annuity funds from positive numbers of N10.3 billion and N16.4 billion to negatives of N4.9 billion and N1.4 billion respectively over the review period. Changes in other investment contracts followed the same pattern from positive N443 million to negative N1.3 billion. 

The upsurge in total underwriting expenses dried up underwriting profit, which crumbled from about N32 billion at the half year in 2021 to N203 million at the end of June 2022.

The strong growth in investment income helped the company to absorb operating cost increases and other revenue disappointments and lift pre-tax profit by 147 per cent year-on-year to N2.2 billion at the half year.

AIICO Insurance earned 13 kobo per share for the first six months of trading in 2022, improving from 9 kobo per share in the same period in 2021. The company earned 13 kobo per share for the 2021 full year and gave out 2 kobo per share to shareholders in cash dividends.