AIICO Insurance Yull-Year Outlook: N29bn Insurance Cost Gulps Revenue, Dims Profit Hopes

AIICO Insurance Plc experienced a bad earning season in the third quarter when finance service expenses doubled to N28.6 billion, consumed insurance revenue of N23.4 billion for the quarter, and dimmed the hopes for profit improvement for the full year.

The company’s full-year earnings forecast indicates that a marginal loss is expected in the final quarter, as the projected closing profit of N6.05 billion is down from the nine-month profit figure of N6.09 billion.

The forecast bottom line will also be a drop from the closing after-tax profit of close to N7 billion the company recorded in the 2022 financial year.

The third quarter interim financial report of the composite risk underwriter at the end of September 2023 shows a sudden major reversal from an outstanding growth of over 143 percent in insurance service results to N4.9 billion in the second quarter to a loss of over N7 billion in the third quarter – more than six times the loss of about N1.2 billion in the same quarter in the prior financial year.

While insurance revenue grew by 46 percent or N7.4 billion to N23.4 billion for the third quarter, insurance service expenses almost doubled to N28.6 billion over the same period.

The insurance service loss for the quarter also consumed a net investment income of N2.5 billion and a net insurance finance income of N1.2 billion and created a net insurance and investment loss of N3.4 billion for the quarter.

An upswing for the company in the third quarter concerns net finance income that shifted from a net expense of over N10 billion in the second quarter and from N1.3 billion net expense in the same quarter in 2022 to a positive number of N1.1 billion.

However, A downswing followed regarding net fair value losses of N5.6 billion in the third quarter, down from fair value gains of N2.9 billion in the second quarter.

The company’s full-year earnings forecast expects a net insurance service result of N7.9 billion but this will be largely consumed by net insurance finance expense of N6.3 billion, contributing only N1.6 billion from the underwriting business to net insurance and investment result projected at N20.7 billion for the full year.

Going by the company’s forecast, the final quarter is expected to contribute insurance revenue of N8.8 billion to top up the closing third quarter figure to over N60 billion.

On the other hand, insurance service expenses of N43.9 billion at the end of the third quarter are expected to decline to N42.7 billion in the full year. Negative insurance service expense in the final quarter is a critical requirement for the integrity of the company’s forecast numbers.

Reinsurance expenses are projected to increase from N7.6 billion at the end of the third quarter to close at N9.5 billion for the year –all working out to the expected insurance service result of N7.9 billion.

The forecast also expects investment income of N3.1 billion to be generated in the final quarter to top up the third quarter figure to N22.3 billion. A huge drop in net fair value loss is expected from N12.4 billion at the end of the third quarter to N5.2 billion at the end of the year.

However, other operating income of N3.8 billion at the end of September is forecast to drop to N1.8 billion in the full year.

Cost savings from the slash in net fair value loss is expected to push up net investment income from N11.2 billion at the end of the third quarter to over N19 billion in the full year. This is another critical development that has to happen for the company in the final quarter.

The company’s hopes for profit delivery in 2023 hang on investing operations. The minor contribution of N1.6 billion from insurance services and the N19.1 billion net investment income make up the company’s net insurance and investment result target of N20.7 billion for the year.

Overhead expenses (personnel and other operating cost) fluctuated unusually from N5.2 billion at half a year to N1.9 billion at the end of the third quarter but are forecast to soar to over N14 billion at the end of the year.

AIICO Insurance closed the nine months of operations with earnings per share of 16 kobo, improving from 13 kobo per share for the same period in 2022.