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AIICO, Cornerstone, Wapic Grow Investment Income Despite Low Yields

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Despite the precipitous drop in yields on government instruments and the wrought caused by the coronavirus pandemic, listed insurers such as AIICO, Wapic and Cornerstone have grown investment income.

Insurers depend on yields on invested funds to complement underwriting performance especially in the face of unfavorable underwriting conditions.

This is because the combined ratio for most companies has spiked due to spiraling claims, underwriting and management expenses, which wipes out much of the gains from premium income.

The largest listed insurers saw combined investment income surge by 61.17 percent to N62.17 billion as at September 2020 from N38.73 billion the previous year.

Notably, the investment returns have propelled some firms that are grappling with deteriorating underwriting conditions to the path of profitability.

For instance, AIICO Insurance, the largest listed insurer by total asset, saw investment income surge by 157.74 percent to N34.39 billion as at September 2020 from N22.43 billion the previous period.

The insurer posted an underwriting loss of N21.41 billion in the period under review, no thanks to an upsurge in claims expenses and annuity on life and non-life.

The uptick in investment returns impacted positively on AIICO Insurance’s bottom line as net income was up 17.10 percent to N5.22 billion as at September 2020.

Mutual Benefit Assurance’s investment income surged by 105.14 percent to N4.71 billion in the period under review as against N2.30 billion the previous year.

Wapic Insurance Plc investment income spiked by 76.49 percent to N1.41 billion in the period under review from N802.76 million the previous year.

Cornerstone Insurance’s investment income was up 45.52 percent to N1.32 billion in the period under review from N908.98 billion the previous year.

Linkage Assurance Plc investment income increased by 43.32 percent to N2.57 billion as at September 2020 from N1.79 billion the previous year.

While insurers’ profits are getting a boost from investment returns, analysts have warned that the dovish tone of the central banks that caused a rotation from bonds to equity could undermine future earnings as they expect investment income to wane.

The decision of the Apex bank to bar individuals, and domestic firms from its Open Market Operations and the cut in cash reserve ratio (CRR) sent Treasury bill yields crashing.

Nigeria’s Treasury bills yield between 0.01 percent and 0.088 percent, which compares with 22 percent and 18 percent two years ago.

Another downside risk to the industry is the coronavirus pandemic that paralyzed business activities across the country, as there were disruptions to the demand and the supply side of the market.

During the period of the lockdown imposed by the government to curb the spread of the virus, there was a reduction in the volume of transactions as insurers were unable to process pertinent transactions.

“Lower demand and investment returns, a significant deterioration in the credit quality of fixed income securities and increased mortality rates from the virus could pressure earnings, reserves and profitability of the life insurance sector in 2020,” said analysts at Afrinvest Securities in a recent note to clients.

Nigeria’s gross domestic product shrank 3.6 percent in the three months through September from a year earlier, compared with a 6.1 percent contraction in the previous quarter, according to the latest data from the National Bureau of Statistics (NBS).

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