NEM Insurance’s Profit Outlook Revives With Better Than Expected Q3 

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The Full-year earnings outlook and its third quarter outing that raised after-tax profit by 20 percent to N1.7 billion, has revived NEM Insurance Plc, reversing the 35 per cent profit dip to N645 million in the second quarter.

The upturn in the third quarter is better than expected, compared to the company’s earnings projection that expects N2.2 billion net profit for the entire second half.

With a fair outing in the final quarter, the general business underwriting firm could close the 2022 full year with a much better profit than the forecast of N5.7 billion for the year.

The third quarter interim financial report of the general risk underwriter for the period ended September 2023 shows that it has regained some speed on the earnings track, which it lost in the second quarter.

Its half-year profit of N3.5 billion climbed to N5.2 billion at the end of the third quarter, quite close to the closing after-tax profit of N5.4 billion in 2022.

The company’s impressive start with an 84.6 percent profit leap in the first quarter eased to a 38 percent increase at half year and further to 31.6 percent growth at the end of the third quarter.

We had placed the company as a watch candidate at the end of the half-year to see if it could sustain its recovery for the second year after lifting from a profit drop to N4.4 billion in 2021 to close at N5.4 billion in 2022.

The high points that enabled the upswing in earnings in the third quarter include a big drop in unearned income that powered a 62 percent advance in gross premium income for the quarter.

There was also a major increase of 209 percent in fee and commission income in the quarter as well as a 95.6 percent increase in investment income, and capping it all, is a foreign exchange windfall of N233 million recorded in the third quarter.

The company’s closing position for the nine months of operations reflects the improvements recorded in the third quarter but several rising costs still limited the ability to convert revenue into profit.

A significant limitation is a huge unearned income of N15.7 billion at the end of the third quarter, which is close to five times the corresponding figure of N3.3 billion in 2022.

The increase in unearned income made a big difference between an increase of about 87 percent in gross premium written to N53.6 billion and a growth of 49.5 percent in gross premium income to N37.9 billion over the period.

There is also rapid growth of 60 percent in reinsurance expenses to almost N14 billion, which lowered the margin of increase in net premium income to 44 percent to stand at N24 billion at the end of the third quarter.

Next is a major increase in underwriting expenses – which grew by 80.5 percent over the period to over N13 billion. That claimed one-half of the net underwriting income of N26 billion and again squeezed the margin of increase in underwriting profit to 22.8 percent to close at N7.4 billion at the end of September 2023.

On the other hand are some revenue improvements and cost savings that created room to contain rising costs and grow profit during the period. These include an increase of about 58 percent in fee and commission income to N2.3 billion as well as a leap of 71 percent in investment income to a little below N2 billion over the same period. These are reinforced by fair value gains of N233 million that were completely not in place in the same period in 2022.

Cost saving was extracted from claims expenses that grew by 20 percent to N5.8 billion year-on-year and claimed a reduced share of net underwriting income at 22 percent compared to about 27 percent in the same period in 2022.

Also, tax expenses were flat at N643.6 million, which improved after-tax profit growth to 31.7 percent to N5.2 billion against the increase of 27 percent in pre-tax profit to N5.8 billion.

NEM Insurance closed the third quarter operations with earnings per share of roughly 52 kobo, up from 39 kobo per share for the same period in 2022.

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