N13bn Net Finance Income Tides AIICO Insurance Over Disappointing Results In Q1 

Net finance income of over N13 billion provided the critical force that overturned AIICO Insurance’s poor insurance service result and negative net investment  income in the first quarter. It also lifted the bottom line more than six times to roughly N9 billion.

The composite risk underwriter is yet running in the pattern of the preceding financial year when both insurance service result and the net investment income ended negative and net finance income of N6.7 billion averted a loss position to build a profit of N1.4 billion in the first quarter.

AIICO’s first quarter interim financial report at the end of March 2024 shows that underwriting business remains under pressure from rising costs, making only a marginal contribution to profit.

Net insurance revenue of N22.7 billion in the first quarter is virtually consumed by insurance service and reinsurance expenses of N17.8 billion and N4.8 billion respectively.

There was a strong growth of 52.8 per cent in insurance revenue year-on-year and insurance service expense slowed down relatively at an increase of 31.9 per cent over the same period but pressure mounted from reinsurance expenses that jumped by about 122 per cent.

Insurance service result for the quarter amounted to less than N122 million – a tiny fraction of the N22.7 billion insurance revenue for the period. It is nevertheless some progress from a loss of over N782 million in the same quarter in 2023.

The 2023 full year ended with negative insurance service result of N1.6 billion while investment income exclusively accounted for the closing profit of N12 billion for the year.

In the first quarter of the current year, the investment arm of the business is up again, being powered by a net foreign exchange windfall of N7.7 billion. This springs forth from a net foreign exchange loss of about N437 million in the same quarter last year.

Further strength came from investment income of N7.5 billion, which is an increase of 26.5 per cent year-on-year.

However, all the earnings were swept away by fair value losses on financial assets of N18.6 billion, a rise of 91 per cent from N9.7 billion sustained in the same period last year. The figure is already well in excess of the full year net fair value loss of N10.8 billion in 2023.

Fair value financial assets through profit and loss is down from over N141 billion at the end of last year to N129.5 billion at the end of the first quarter.

Net investment result is therefore a loss of N2.9 billion for the first quarter, an improvement however from a bigger loss of over N4 billion the company sustained in the same period in 2023.

Net insurance and investment result is a loss of roughly N2.8 billion – which was overwritten by net finance income that doubled from about N6.7 billion to N13.3 billion over the review period.

It provided the quickening force that overturned the N2.8 billion net insurance and investment loss into a pre-tax profit of over N10 billion at the end of the first quarter. This is an outstanding growth from less than N1.5 billion pre-tax profit in the same quarter last year.

AIICO Insurance similarly lifted after-tax profit from N1.4 billion to slightly below N9 billion over the same period.

It ended the first quarter operations with earnings per share of 24 kobo, improving from 4 kobo per share for the same period in 2023.

The company’s earnings forecast for the next two quarters show that insurance service and reinsurance expenses will continue swelling, consuming 95 per cent of insurance revenue.

Investment income will be the profit driver for the second year, according to forecast but the key function in profit growth – finance income, will turn a big negative, breaking the speed of profit improvement and leaving the nine-month bottom line position only slightly better than the first quarter close.