AIICO Insurance Plc expects much elevated final quarter earnings propelled by a rebound in underwriting results and further upshot in investment income to deliver an after-tax profit of N16.7 billion for its 2024 operations.
The closing quarter isn’t expected to be that strong on insurance revenue but a slash of reinsurance expenses will turn an underwriting loss of N2.5 billion at the end of the third quarter into a profit of N3.5 billion, according to the company’s full-year earnings forecast. This will be a positive change of fortune from a negative insurance service result of N1.6 billion for the 2023 full year.
The company’s insurance expenses are expected to stay comparatively high, consuming as much as 84.5 per cent of insurance revenue but this will be compensated by a slowdown in reinsurance expenses to squeeze out the first reasonable underwriting profit for the company in three years.
A healthy growth in investment income is to be expected as well, driven by interest earnings and net foreign exchange gains. Despite sustaining net fair value losses, AIICO Insurance is looking forward to reporting net investment income of over N35 billion for the 2024 full year.
The third quarter interim financial report of the composite risk underwriter at the end of September 2024 shows that investment income provided the critical lifeline during the third quarter.
Net investment income multiplied four and half times year-on-year during the quarter to N19 billion, which compensated for the insurance service loss of N4.2 billion for the quarter and also absorbed net finance cost of close to N11 billion.
However, the net insurance and investment result of N4 billion for the quarter was insufficient to cover operating costs, resulting in a net loss of N443 million for the third quarter.
The closing numbers at the end of the third quarter show group insurance revenue of almost N77 billion, which is an increase of one-half year-on-year. The full-year revenue figure is forecast to be in excess of N90 billion against N72.6 billion at the end of 2023.
Insurance service expenses amounted to N63 billion at the end of the third quarter, a moderated growth of 43.8 per cent.
The challenge came from reinsurance expenses that surged up by 114 per cent to over N16 billion over the period, throwing the underwriting result into negative N2.5 billion.
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The final quarter is however promising to cut reinsurance expenses down to N10.6 billion for the year, freeing the funds to build underwriting profit.
The company’s strength in investment activities came into play with interest earnings advancing by 28.4 percent year-on-year to N29.4 billion at the end of the third quarter. AIICO commands interest-bearing financial assets in excess of N314 billion.
A big reinforcement of earnings followed from net foreign exchange gains of N11.8 billion, four and half times the corresponding figure of N2.6 billion in 2023. Further strength was added from a sharp drop in net fair value losses from N12.4 billion to N7.5 billion over the review period.
At N33.7 billion at the end of the third quarter, net investment income is two and a half times the corresponding figure of N13 billion in 2023.
A big surge in net finance expenses from N2.3 billion to N12.5 billion over the review period lowered net insurance and investment results to N18.8 billion, which is nevertheless a strong growth of 76 per cent year-on-year.
With operating expenses moderated at N6.2 billion at the end of the third quarter, pre-tax profit more than doubled at 111 per cent year-on-year to N13.8 billion – one of the highest profit improvements for AIICO Insurance in years.
At N12.4 billion, group after-tax profit also more than doubled at 110 per cent year-on-year at the close of the third quarter.
The final quarter is expected to grow investment income to over N36 billion, increase net fair value losses, depress net foreign exchange gains and top up the closing after-tax profit for the year to N16.7 billion.
This will be an increase of 39 per cent over the closing group after-tax profit of N12 billion for AIICO Insurance in 2023, further up on the 132.6 per cent jump in after-tax profit in the previous year.
The closing quarter could be much better than expected as in the preceding year when the company earned half of its full-year profit of N12 billion in the final quarter.
The company ended the third quarter operations with earnings per share of 33 kobo, improving from 14 kobo per share for the same period in 2023. The full-year expectation is 45 kobo per share.
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