Cornerstone Insurance Expects N13bn Full-Year Profit On Huge Forex Gains 

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Cornerstone Insurance Plc expects to stir the market with an after-tax profit of N12.6 billion for the full year ended 2023 – more than the company’s annual profits for the past four years put together.

The figure, which will be more than five times the closing profit of N2.5 billion in the prior financial year, is powered by a huge foreign exchange windfall of roughly N12 billion at the end of the third quarter.

The big inflow provides the company with an impressive dressing of poor underwriting results that marked its operating story in 2023. Underwriting profit fell by 82 percent to N682 million at the end of the third quarter and the three months of the third quarter closed with a net loss of N388 million.

Management is however optimistic to make up the numbers in the final quarter with a forecast net profit of N1.7 billion to top up the closing third quarter figure of less than N11 billion to N12.6 billion for the full year.

The optimism for a much improved final quarter rests on enhanced premium income and a sharp drop in net claims expenses compared to third-quarter closing figures. This will be reinforced by outstanding growth in investment income quarter-on-quarter.

The loss in the third quarter was induced by an increase of 61 percent in reinsurance expenses to N3.5 billion – which caused a decline in net premium earned as well as a net foreign exchange loss of N859 million for the quarter.

On the upside of the third quarter performance is a major increase of 92 percent in fee and commission income to N910 million, a drop of 20.4 percent in net claims expenses to N608 million, and an inflow of N582 million in net trading income from zero records in the same quarter in the preceding year.

Also, the underwriting results reversed from a loss of N2.1 billion in the second quarter to a profit of N1.9 billion in the third quarter.

The third quarter interim financial report of the composite risk underwriter at the end of September 2023 shows sustained weakness in converting gross premium written into earnings.

While gross premium written grew by N6 billion to the region of N21 billion at the end of the third quarter, no part of the increase formed part of the net premium earned. Unearned premium income grew by N1 billion, negative changes in life fund rose by N1.7 billion and negative changes in annuity life fund surged from N101 million to N1.2 billion year-on-year.

Also, reinsurance expenses grew by N1.5 billion to N9.4 billion over the period. Net premium income went down about 5 percent to N7 billion at the end of the third quarter.

An increase of 14.4 percent in fee and commission income to N1.8 billion strengthened net premium income to a little below N9 billion, slightly down from the over N9 billion figure in the same quarter in 2022.

Much of the net underwriting income was consumed by claims and underwriting expenses. Led by an increase of over N1 billion in outstanding claims, net claims expenses more than doubled at 105.8 percent to N4.9 billion.

Net underwriting expenses also increased by over 15 percent to N3.3 billion. Consequently, underwriting profit dropped from N3.7 billion in the same period in the preceding year to N682 million at the end of the third quarter. It is nevertheless an upturn from a plunge into a loss of N1.2 billion in half a year.

The poor underwriting result of the company is more than remedied by the investment arm of the business. Investment income of N2.6 billion was realised from the company’s over N34 billion financial assets – an increase of 35.8 percent year-on-year.

But the big news is the inflow of close to N12 billion in net foreign exchange gains compared to an insignificant figure in the same period in 2022.

Other favourable developments include a huge drop in financial asset value losses from N1.8 billion to N16 million and the appearance of a net trading income of N582 million in the third quarter. The favourable developments on the investment arm shielded the company from major operating pressure in the underwriting business and changed its fortunes from the huge drop in underwriting profit to a high jump of seventeen and half times in the bottom line to close at N10.9 billion at the end of the third quarter.

Earnings per share advanced from 3 kobo per share in the same period last year to 60 kobo per share for Cornerstone Insurance at the end of the third quarter operations in September 2023.