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Tuesday, August 9, 2022

AIICO Insurance Profit Margin Bounces Back From Pandemic Lows

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AIICO Insurance Plc has overcome the coronavirus crisis that disrupted business activity across the country as it recorded the highest profit margin in more than a decade.

A strong margin means the insurer is able to run its business across marketing and distribution well.

For the first three months through March 2022, AIICO Insurance’s net profit margin rose to 28.07 percent from 10.90 percent the previous year, according to MoneyCentral calculations.

Net profit margin measures how much net income is generated as a percentage of revenues received.

Net profit margin helps investors assess if a company’s management is generating enough profit from its sales and whether operating costs and overhead costs are being contained.

If the company maintains strong profit growth in the remaining quarters of the year, its shareholders will be getting a better reward in the form of a magnified dividend.

However, insurers are struggling with huge operating and claims expenses that have pummeled profitability and underwriting margins.

There are negative prognoses  from analysts who have unanimously agreed sector players will capitulate to a fragile macroeconomic environment. And that compounds the woes of firms who are reeling from deteriorating combined ratio.

“We expect claims ratio to increase albeit at a slower pace while underwriting margin would be pressured downward,” said analysts at Afrinvest Securities.

“This expectation is predicated on the deteriorating effect of the rising inflation rate which could result in higher claims particularly in the non-life business. Subsequently, we foresee mounting pressure on underwriting margins as the inflationary effect trickles into insurance policy acquisition and maintenance cost thus raising underwriting expenses,” said the analysts.

Of course, Russia’s invasion of Ukraine and the ensuing sanctions on the latter by the United States and The European Union has stoked inflation across the globe and central banks have hiked the monetary policy rates to tame rising prices.

A sky-high inflation and currency volatility means insurers will be paying higher replacement costs of assets, and that is on top of the cost of buying diesel oil to power offices across the country.

AIICO Insurance Plc has forecast that profit would hit a record in the third quarter (Q3), thanks to improvement in the yield environment and recovery from the coronavirus pandemic.

In a statement on the Nigerian Exchange Limited, the largest listed company by total assets, said it expects net income to hit N2.99 billion in the third quarter. That is 23.55 percent higher than the N2.42 billion the corresponding period of 2021.

The insurer also forecast gross premium income (GPI) of N60.34 billion in the third quarter, and that is 17.37 percent higher than 2021’s N51.44 billion

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