A sudden downswing from net finance income of over N13 billion in the first quarter to N15 billion expense in the second quarter has slashed AIICO Insurance’s profit from N9 billion in the first quarter to N3.9 billion in the second quarter.
The development aligns with the company’s forecast that the key function in profit growth in the first quarter, the finance income, would turn a big negative, breaking the speed of profit improvement.
The net finance income in the first quarter provided the critical line that tided the company over poor underwriting results and negative net investment income in the quarter and powered the strong profit delivery for the period.
The half-year interim financial report of the composite risk underwriter at the end of June 2024 shows that the underwriting business has recovered from the poor outing in the first quarter and so has net investment income overwritten the negative figure delivered in the preceding quarter.
The second quarter delivered an insurance service result of N1.6 billion, rising from the insignificant figure in the first quarter and accounting for over 93 per cent of the half figure of N1.7 billion. Also, net investment income of N20 billion flowed in within the second quarter, overwriting negative income of close to N3 billion in the first quarter to produce over N17 billion net investment income for the group at half year.
Net finance income from insurance contracts, which was the company’s strength in the first quarter, was overturned to become its major drawback in the second quarter. Net finance expense of over N15 billion in the second quarter consumed the N13 billion income realised in the first quarter and left net finance expense of N1.7 billion at the half year.
That was the factor that undermined profit delivery in the second quarter. Net insurance and investment results dropped from N7.9 billion in the same period last year to N6.7 billion for the second quarter, down from N10.6 billion in the first quarter.
The increase in finance expenses on insurance contracts reflects changes in interest rates and the time value of money, according to the company’s explanatory notes.
The after-tax profit for the second quarter also dropped from N5.3 billion to N3.9 billion year-on-year and from almost N9 billion achieved in the first quarter. Half-year operating numbers show that the group’s net insurance revenue is N48.8 billion, which is an increase of 48 per cent year-on-year. The revenue is mostly consumed by insurance service and reinsurance expenses of N38.8 billion and N8.3 billion respectively.
This aligns with the company’s earnings forecast, showing that insurance and reinsurance expenses would consume 95 per cent of insurance revenue. Insurance service results for the half year amounted to less than N1.8 billion, which is nevertheless a major upturn from a loss of N137 million in the same period in 2023.
It is also a promising development compared to the negative insurance service result of N1.6 billion for the 2023 full year.
A major positive development in the investment arm of the business in the second quarter is the appearance of a fair value gain on financial assets of over N7 billion. The inflow slashed net fair value losses of N18.6 billion in the first quarter to N11.4 billion in the half year, yet a major increase of about 68 percent year-on-year.
Fair value financial assets through profit and loss have recovered from N129.5 billion at the end of the first quarter to N155.5 billion at half year.
The relative slowdown in net fair value losses enabled the company to retain improvements in investment income and foreign exchange gains. Investment income grew by 25 per cent year-on-year to N18.4 billion and net foreign exchange gain jumped more than three times to nearly N11 billion.
Net investment income rose by 51.6 per cent year-on-year to over N17 billion at the end of half-year operations and a rebound from a loss of N2.9 billion at the end of the first quarter. Investment income is expected to be the profit driver for AIICO Insurance for the second year.
The huge net finance expenses from insurance contracts that occurred in the second quarter erased the income generated in the first quarter and left net insurance finance result of negative N1.7 billion at the half year. With the upturn in underwriting results and net investment income, net insurance and investment results grew by 79.6 per cent year-on-year to over N17 billion at half-year.
AIICO Insurance closed half-year operations with a pre-tax profit of N14.4 billion, which is close to doubling year-on-year from N7.2 billion in the same period last year. After-tax profit equally is up from N6.7 billion to N12.9 billion over the same period. The company ended the half-year operations with earnings per share of 35 kobo, improving from 18 kobo per share for the same period in 2023.
AIICO Insurance’s earnings forecast shows that another huge negative insurance finance expense is to be expected in the third quarter and the nine-month bottom line position may only be slightly better than the first quarter.
Micheal has over 5 years experience in digital journalism. He’s a New Media Expert with an interest in Human Development and Global Politics.
