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There indicators shareholders will be paid a higher dividend as rising interest rates that underpinned investment income and foreign exchange gains due to devaluation of the currency have propelled insurers’ profit.
Of course, the stellar performance validates the improved return on equity (ROE) and attractive stock valuation as analysts have maintained a positive outlook for the industry.
The largest and most liquid insurers saw their combined profit surged by 124.50 percent to N61.47 billion in September 2023 from N27.38 billion as at September 2022, according to data gathered by Meristem Securities Limited.
The improvement at the bottom line (profit) was largely driven by an uptick in investment securities as these firms invest part of their premium in short and long term government securities to earn juicy yield. And there was an improvement in yields as an aggressive tightening by the central bank to curb rising inflation jerked up treasury yields.
Income from investment securities for the big firms spiked by 23.76 percent to N41.19 billion in September 2023 from 332.28 billion the previous year.
The Central Bank of Nigeria lifted its benchmark interest rate by 25 bps to 18.75 percent in a decision announced on July 25th 2023, less than expected. It marks the fourth consecutive rate hike so far this year, bringing borrowing costs to their highest since the monetary policy rate was adopted in 2006.
Nigeria’s headline inflation rate rose to 28.20 per cent in November from 27.33 per cent in October 2023, according to data from the NBS.
Nigeria 10 year bond yield was 13.80 percent on Friday January 5, according to over-the-counter interbank yield quotes for this government bond maturity. Historically, the Nigeria 10-Year Government Bond Yield reached an all-time high of 17.31 in February of 2015.
AIICO Insurance’s net profit increased by 23.76 percent to N6.08 billion in September 2023 from N4.94 billion the previous year. The insurer realised N19.17 billion in investment income, which is 51.12 percent higher than 2022’s N12.622 billion.
AXA Mansard’s net profit surged by 741.74 percent to N12.55 billion as at September 2023, underpinned by N10.58 billion net gain on financial assets. The insurer saw investment securities rise by 67.98 percent to N1.23 billion.
Cornerstone Insurance’s profit after tax (PAT) surged by 1644.13 percent to N10.86 billion in September 2023, supported by net exchange gains of N11.91 billion.
Analysts say this year is auspiciously propitious for insurers given increased awareness and acceptability of insurance products by consumers and expansion across all products.
Despite an uptick in profitability and relatively attractive valuation, insurers’ profit margins are abysmally slim compared to the banks with much larger liquidity.
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