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AIICO Insurance’s ROE Slumps on Fair Value Loss on Financial Asset 

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While AIICO Insurance made money by parking policyholders’ premiums in fixed income securities, a huge fair value loss on financial assets pressured the insurer’s return on equity.

Of course, insurance companies in Africa’s largest economy who had ridden out of the coronavirus pandemic are now beset by inflationary pressures, currency volatility, a low yield environment, and huge energy costs undermining profitability.

AIICO Insurance’s return on average equity (ROAE) fell to 11.45 percent in December 2021 from 17.03 percent as at December 2020, according to MoneyCentral calculations.

The ROAE is abysmally poor when compared with the 106.37 percent recorded in 2017, a period that coincided with the introduction of a new foreign exchange window and the rebound in crude oil price that helped the country exit its first recession in 25 years.

Expectedly, net income reduced by 20.80 percent to N4.15 billion as at December 2021, despite an item of exceptional income of N2.37 billion, being money realized from the sale of a subsidiary.

During the year, AIICO Insurance sold part of its investments in AIICO Pensions, thereby reducing its holdings from 70.2 percent to 36.29 percent by the sales of 33.91 percent. This effectively reduced AIICO Pensions from a subsidiary to an associated company.

Profit was significantly pressured by N34.72 billion in net fair value loss on financial assets, and analysts attribute this to the low yield environment as the central bank stuck to a dovish tone.

Insurers have been urged to build a stronger, more diversified and efficient underwriting portfolio that will produce superior returns for their shareholders in 2022.

AIICO Insurance posted underwriting profit of N29.49 billion in December 2021 from a loss position of N36.27 billion as at December 2020.

The underwriting income was bolstered by N19.86 billion change in life and annuity fund, but the insurer recorded negative real underwriting results of N2.34 billion.

It must be noted that the real underwriting results is a better gauge of underperformance because it includes management expenses in its variables.

That is validated by AIICO Insurance combined ratio of 104.78 percent in December 2021, a deterioration from 2020’s 96.44 percent.

The insurer paid total claims of N39.83 billion in December 2021, which is 25.84 percent higher 2020’s N31.65 billion.

Claims ratio moved to 67.98 percent in the period under review against 59.98 percent the previous year.

Total expense ratio increased to 36.80 percent in the period under review as against 36.46 percent the previous year. Total operating expenses (underwriting expenses plus management expenses) rose by N21.55 19.24 12 percent to N21.55 billion as at December 2021.

To navigate through a dynamic environment and produce a high level of service that meets customer’s needs, AIICO Insurance is at the forefront of digital innovation with the launch of a solution to aid easy distribution of its products and services.

It launched AIICO Express’, is a one-stop mobile application for agents to serve customers better and faster.

The firm’s Head, Strategic Marketing & Communications, Segun Olalandu, said AIICO Agency salesforce can leverage the power of the mobile apps to conclude multiple transactions on their phones. In addition, the secure app offers them a significant opportunity to carry out their business in a flexible, efficient, and convenient manner.

A slew of innovative products has yielded as the insurer saw revenue growth, but rising combined ratio and exceptional losses have prevented top line impressive performance to trickle down to bottom line growth.

Gross premium written (GPW) was up 16.31 percent to N71.68 billion in December 2021 from N61.97 billion as at December 2020.

A breakdown of GPW shows premium income from non-life rose by 36 percent to N19.04 billion in December 2021 from N14 billion as at December 2020. Premium income from the Life segment increased by 19.45 percent to N49.73 billion in December 2021 from N41.63 billion the previous year.

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