Tension As AIICO Records N2.2bn Underwriting Loss in Q3


AIICO insurance operations have again suffered a loss in the area of underwriting, its core business.


In the third quarter audited financial reports submitted to the Nigerian Exchange, the insurance firm's total underwriting expenses exceeded net underwriting income, causing an underwriting loss of N2.2 billion in the third quarter.


The composite risk underwriter only managed to hit a break-even level with a share of associate profit that assisted it from  a total loss for the period.


AIICO's entire closing profit for the period consists of roughly N2.4 billion which was made from a sold subsidiary.


With the increase in fee and commission income, AIICO improved net underwriting income by 11.5 per cent year-on-year to nearly N45 billion.


However, an increase of 34 per cent in underwriting expenses to N7.6 billion over the period added to the operating pressure facing the company. It was saved by the positive changes in life and annuity funds which lowered total underwriting expenses to N15 billion, a big slash from close to N63 billion in the same period in 2020.


Weakness in building underwriting profit observed in the second quarter intensified in the third – when it suffered an underwriting loss of N2.2 billion. That reduced its underwriting profit from N32 billion at mid-year to N29.7 billion at the end of the third quarter operations.


Despite the decline, the underwriting profit figure remains a major upturn for the company from an underwriting loss of N22.4 billion in the same period in 2020.


Loss has been a permanent feature for some time now in the underwriting unit which is the core business of AIICO Insurance. The company’s volume of underwriting business keeps growing but the underwriting expenses keep overtaking the earnings.


Recall in 2019, AIICO Insurance closed that section at a loss of N6.3 billion and by June 2020, the underwriting loss has grown to nearly N11 billion, doubling on a year-on-year basis.


 The company raked in gross premium income of N29 billion at the end of June 2020 operations, but like 2019, no part of the earnings reached the bottom line. Instead, the company had to look elsewhere to absorb the enlarged underwriting loss.


Inability to achieve a balance between underwriting income and expenses has been the company’s challenge for the fifth straight year. This development that speaks volumes of the company's strategy also raises a red flag as profit possibility within the company's core operations appears to be out of the way for now.


Total underwriting expenses as of half-year 2020 rose well ahead of net underwriting income at about 40 per cent compared to about 25 per cent during the previous period. The margin by which underwriting income could not meet underwriting expenses grew at half-year. That explains the doubling of underwriting loss year-on-year at the end of June 2020.


The drop in underwriting profit in the third quarter of 2021 from the half-year level was reinforced by declines in key income lines as well as increases in some key cost figures. Investment income went down by 10 per cent year-on-year to close at N9.5 billion at the end of September 2021.


A further increase in financial asset value losses to N33.8 billion consumed more than the underwriting profit for the period. This is against a net fair value gain of N21 billion in the same period in 2020.

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