Cornerstone Insurance In Uphill Task To Fill Up Hole
Cornerstone Insurance Plc is on track to building profit for the second year, pushing ahead from two years of major losses that built a retained deficit of over N4 billion in 2017. The company achieved a big turnaround last year that cut down the accumulated losses to a little below N2 billion. The profit it reported at the end of half year operations this year has lowered the deficit further to N1.6 billion.
Will Cornerstone Insurance be able to fill up the retained deficit hole in the balance sheet this year is the question mark on the company’s earnings outlook for 2019. Profit needs to be big again this year to wipe off the deficit and create earnings good enough for dividends.
Directors need a cash dividend payout this year to raise investors’ confidence before calling on them for new capital injection. The composite insurance company needs to inject over N10 billion in new money to meet the new capitalization requirement of N18 billion by June 2020.
The company’s profit figure, at about N502 million at half year 2019, is a year-on-year improvement but it is too distanced from the closing figure of over N3 billion it posted at the end of 2018. It is pertinent however that as much as 85 percent of the profit of last year was earned in the second half. The boost came from an apparent windfall of close to N3 billion share of profit from joint venture.
Repeating the earning pattern of robust second half this year and driving the year-on-year profit improvement to full year is the big task in the hands of the company’s management in 2019. Another similar windfall from the joint venture this year is all that the company needs to be home and dry.
Revenue performance so far this year isn’t providing the strength needed to scale through the task ahead. Net premium income declined slightly at the end of half year operations, as reinsurance expenses grew more than twice as fast as gross premium income. Reinsurance premium consumed an increased share of gross premium income from 46 percent at the end of last year to 52 percent at the end of June.
A major favourable development that countered the weakness in revenue is a 30 percent drop in insurance claims. This was equally the experience last year when gross claims dropped by 40 percent at full year. The drop at half year resulted in a 20 percent cut down in net claims expenses and provided the cost saving centre that permitted a 52 percent advance in underwriting profit over the review period.
An improvement in investment income was more than countered by sharp drops in other income lines of the company. Increases in the main expenditure heads also constrained the ability to convert the earnings into profit.
Cornerstone Insurance closed the half year operations in June 2019 with gross premium income of N6.06 billion, up by 11 percent year-on-year. Reinsurance expenses grew by 27 percent to over N3 billion and claimed more than all the increase in gross premium income. Net premium income therefore declined marginally to N2.92 billion at the end of half year operations.
A leap of 50 percent in fees and commissions made up for the decline in net premium income and enabled an increase of 4 percent in net underwriting income to N3.45 billion. This was reinforced by a drop of 30 percent in gross claims to N2.75 billion – which is the critical factor in the company’s earnings story so far this year.
Despite that insurance claims recovered from reinsurers dropped more rapidly at 38 percent to N1.33 billion, the company still achieved a reduction of 20 percent in net claims expenses at N1.42 billion at half year. At the end of last year, the company recorded a drop of 62 percent in net claims expenses.
Net underwriting expenses grew by 14 percent to N969 million year-on-year – four and half times as fast as the improvement in net underwriting income. The cost saving from net claims expenses however powered a 52 percent advance in underwriting profit to N1.06 billion at the end of June 2019.
An increase of 8 percent in investment income to N551 million at the end of June was a good record by the standard of the investment market this year. This was however neutralized by a drop of 33 percent in fair value changes in financial assets as well as a 24 percent flop in other income.
At the same time, personnel and operating expenses grew to claim increased proportions of income. The company closed half year operations with an after tax profit of about N502 million, an increase of less than 10 percent year-on-year.
In the same period last year, it earned N457 million in after tax profit but closed the financial year with N3.02 billion. The difference came from a share of profit of 2.9 billion from joint venture that was completely missing at half year. Whether the joint venture profit will again appear at the end of this year will be the critical factor in whether the company will lose or gain profit at full year.
Earnings per share amounted to 3 kobo for Cornerstone Insurance at half year, unchanged from the figure in the same period in 2018. The company earned 20 kobo per share at the end of 2018.
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