By Favour Nnabugwu
AIICO Insurance has recorded an increase in Profit before tax by 11.3 percent to ₦1.6 billion in Q1 2021 while in the Q1 2020, it was ₦1.4 billion) on the back of improved overall profitability in the insurance businesses (Life, General and HMO).
Profits in our Wealth Management business declined in Q1 2021 as capital markets turned bearish during the quarter.
The company’s ross written premium grew by 12.2 percent to ₦19.7 billion in Q1 2021 against the ₦17.6 billion announced in the Q12020.
This was due to an increase of 34.0 percent in the General Insurance business against 35.7 percent of gross written premiums to ₦7.0 billion Q1 2020: ₦4.6 billion
Underwriting profit of ₦27.7 billion in Q1 2021 while in the Q1 2020 it was ₦-131.0 million. Changes in sovereign bond yields impacted the value of our liabilities and assets.
These movements are reflected in the change in life and annuity funds as well as fair value/realized gains or losses on the income statement. In the Life business, we are typically concerned about whether there is a surplus or deficit of assets over liabilities because of these movements.
However, because of limitations in financial reporting, changes in liabilities affect underwriting profits while changes in assets are reported below underwriting profits. The effect is the significant variation in underwriting profits especially in volatile investment yield environments, such as we have in Nigeria.
During Q1 2021, annualized yields rose by 430 basis points to 11.7 percent at the long end of the yield curve, leading to a reduction in the fair values of assets and liabilities; the reduction in liabilities led to positive underwriting profit while the reduction in assets is reflected in the fair value losses for the period.
Total Investment income declined to a loss of ₦24.1 billion in Q1 2021 and in the Q1 2020 the company had ₦4.7 billion as Federal Government of Nigeria bond yields rose, affecting the fair value of our financial assets. Federal Government of Nigeria bonds make up most of our investment portfolio.
Profit after tax declined by 17.6 percent to ₦1.5 billion in Q1 2021 and in Q1 2020: ₦1.9 billion tax credits of ₦435.7 million in Q1 2020 improved after tax performance compared to Q1 2021.
Total assets declined by 11.1percent to ₦216.2 billion in Q1 2021 (FY 2020: ₦243.1 billion) driven by a reduction in financial assets (-9.3percent; 79.0 percent of total assets) and cash and cash equivalents (-38.2percent; 9.1percent of total assets).
Total liabilities declined by 13.4percent to ₦180.6 billion in Q1 2021 (FY 2020: ₦208.4 billion). This was driven mainly by decline in insurance contract liabilities (-15.9percent) from the rise in yields and reserving for new business and fixed income liabilities (-9.5percent) in our asset management business.
Total equity increased by 2.8percent to ₦35.6 billion in Q1 2021 (FY 2020: ₦34.7 billion)
Commenting on the results.
Mr. Babatunde Fajemirokun, the Managing Director and Chief Executive Officer said, “The world is in a difficult moment and Nigeria has not been spared. Even as the world starts to move on from the pandemic, the economic after-effects will reverberate for a while yet. However, there is some reason for optimism – economic activities have improved, and the country will likely exit the recession.
“Oil prices remain elevated, and the pandemic-induced lockdowns are easing all over the world. We made significant strides in 2020: implementing our business continuity plan and leveraging technology to improve processes and get closer to our customers. Building on this, we recorded premium growth of 12.2% y-o-y to ₦19.7 billion in Q1 2021. Our financial position remains resilient as well – shareholders’ funds increased 3.3% year-to-date to ₦34.8 billion”.
“Nonetheless, we remain optimistic that economic activities will continue to rebound in coming periods, the IMF has revised its economic growth forecasts for Nigeria upward to 2.5% from 1.5%. Insurance, like every other sector, will have its role to play in the economic recovery as enablers of economic growth by assuming risks that encourage long-term direct investment which enhances production and job creation. Our robust financial position ensures that we can meet our obligations when they arise.”