AIICO Insurance recently released its first-half 2024 results, showcasing an impressive pre-tax profit growth of 98.26%, reaching N14.38 billion.
This performance is notable as it not only surpassed the entire 2023 profit by 15% but also exceeded the first half-year and nine-month 2024 forecasts by 132% and 49%, respectively.
At face value, this suggests efficient management and strong operational performance, boosting investor confidence in the company’s ability to sustain its growth trajectory.
Consequently, AIICO could represent a compelling investment opportunity for those seeking growth and stability in the insurance sector, with the potential to drive up its stock price and offer capital gains for investors.
This could be the driving force behind the recent resurgence in share price following the nearly 15% decline recorded in Q2 2024.
As of the close of trading on Friday, August 16, 2024, the share price has achieved a year-to-date gain of 40%, making it one of the best-performing insurance stocks on the NGX.
Surpassing the full-year 2023 profit by mid-2024 and outperforming both the first half-year and nine-month forecasts by substantial margins reflects a robust upward trajectory.
However, a closer examination reveals that much of this growth was driven by non-operational gains, particularly from foreign exchange (FX) transactions, raising questions about the sustainability of these results.
Key Financial Highlights
Gross Premium Written (GPW): AIICO’s gross premium written grew by 55% in the first half of 2024, reaching N87.42 billion, from N56.40 billion in the same period last year.
This is more than 79% of 2023 figures and suggests that AIICO is on track to exceed its 2023 premium figures if the growth trend continues throughout the remainder of 2024
Insurance Revenue: The insurance revenue for the first half of 2024 reached N48.81 billion, which is about 21% higher than what was forecasted for that period.
This indicates that the company exceeded expectations in terms of revenue generation. With a 48% YoY growth, AIICO not only surpassed its forecast for the first half of 2024 by a notable margin but also showed impressive growth compared to the previous year, reflecting strong operational performance and effective revenue generation.
Insurance Service Expenses: With insurance expenses consuming an average of 80% of insurance revenue, this reflects a high expense ratio.
This indicates that a significant portion of revenue is being used to cover costs, which can compress profit margins.
This impact is evident in the company’s insurance performance: Life Business generated a profit of N2.2 billion, while the gel business segment faced a loss of N871.5 million. Consequently, the total insurance service result moderated to N1.75 billion, reflecting a thin margin of 33.7%.
This suggests that despite generating substantial revenue, high expenses are affecting overall profitability and highlight the need for improved cost management.
Net Investment Income: Like the insurance business segment, net fair value losses have moderated net investment income, particularly from the Life Business segment, deeply affecting the company’s investment returns. The ratio of fair value losses to investment income is about 62% in the first half of 2024.
However, significant foreign exchange gains have boosted profitability, with foreign exchange gains amounting to N10.85 billion, an impressive 218% YoY growth. This elevated net insurance and investment income to N17.3 billion, marking a 79.6% YoY growth.
Without the foreign exchange gain, AIICO’s net insurance and investment result would have been N6.4 billion for the first half of the year, and profit before tax would have been N3.5 billion.
This highlights the substantial impact of foreign exchange income on the company’s overall financial performance.
In 2023, net investment and insurance income surged by 102% to N16.3 billion, largely driven by a foreign exchange gain of N6.4 billion. However, the company recorded an insurance service loss of N1.6 billion, a stark contrast from the insurance profit of N225 million in 2022.
Outlook and Forecast: AIICO has adjusted its nine-month 2024 profit before-tax forecast to N9.7 billion, excluding foreign exchange gains.
This adjustment reflects a more conservative and realistic outlook, focusing on the company’s core operational performance without relying on volatile foreign exchange gains.
The forecast of N9.7 billion, even without the FX boost, indicates AIICO’s confidence in its ability to sustain profitability through its core insurance and investment activities.
This move also signals a more stable financial projection, which could enhance investor confidence by demonstrating the company’s resilience and ability to generate consistent earnings in a less favourable FX environment.
Achieving this forecast will likely require AIICO to significantly enhance its core operational performance to ensure more stable and consistent profitability.
The company’s outlook, as stated in its 2023 financial report, reinforces this commitment:
“Our dedication to sound risk practices ensures that we can capitalize on growth opportunities while safeguarding shareholder capital. With a track record of resilience in navigating economic cycles and maintaining stability, we confidently embrace the challenges ahead, reaffirming our commitment to delivering value to all stakeholders.”
Overall while AIICO has delivered strong results and experienced a notable share price rally, the sustainability of this growth will depend on the company’s ability to manage its expenses effectively.
If AIICO can navigate these challenges successfully, it could continue to offer compelling investment opportunities and maintain its growth trajectory.
However, investors should remain cautious and monitor the company’s performance closely, particularly its core operational results and future financial projections.
