AIICO: Analysts Uphold Modest Outlook as Underwriting Profit Falls
AIICO insurance breaks earnings performance in the first quarter of the financial year 2022, and analysts have moved to lower their expectations for the year. Rated hold, Meristem Securities reduced AIICO price target by about 6% to 69 kobo from 73 kobo due to limited upside potential estimated at about 7%. In the local bourse, the company stock trades at 68 kobo on Thursday.
In the first quarter of the year, the Insurance Company’s earnings performance peppered by weak underwriting profit was helped by profit made from sales of pension subsidiary to FCMB Group.
In its three months unaudited financial statement submitted to the regulators, AIICO reported double-digit growth in the top line amidst economic recovery. The company’s gross premium written in the period advanced by 25.26% year on year to N24.66 billion.
Meristem Securities analysts said in an equity report that growth was recorded across all business segments except health management which declined by 17.83% year on year. READ: AIICO Insurance Rated Hold as Analysts Estimate Limited Upside
AIICO’s life business remains the key driver of top-line accounting for 59.66% of total premiums written, according to Meristem Securities report. There was a surge in net claims and underwriting expenses by 0.93% and 30.51% year on year, which remained major headwinds for the firm, analysts stated.
Meristem Securities explained that this was further aggravated by the increase in actuarial valuation for the life and annuity business which is in line with the investment firm’s 2022 expectation, given the reversal in the general yield environment.
AIICO recorded an underwriting loss of N0.29 billion from N27.70 billion in the first quarter of the financial year 2021, the Insurance Company’s unaudited result shows. Weak earnings outing impacted the company’s bottom line in the first three months of the financial year 2022 amidst heavy rivalry in the insurance sector.
In the period, AIICO’s pretax profit slow down by 14.12% year on year to N1.36 billion due to huge foreign exchange losses and pressures on operating expenses, analysts explained.
Meristem analysts said in the report that the finalized sale of its AIICO pension subsidiary to FCMB Pensions supported the bottom line, though underwriting profit declined strongly by more than 101%.
The Insurer’s profit after tax improved by 206.27% year on year. Meristem Securities analysts maintain a modest outlook for AIICO by 2022, premised on moderate underwriting performance and marginal growth in the bottom line.
Analysts see the Insurer’s combined ratio declining to 68.95% from 75.93% in the first quarter of 2021; indicating improved operational efficiency. On the positive side, AIICO’s net margin rose by 23.41% year on year above the peer average of 4.30%, according to Meristem Securities.
The company’s underwriting margin deteriorated to -1.42% from 159.64% in the comparable period in 2021, which Meristem Securities analysts attribute to a decline in underwriting profitability.
On the balance sheet side, AIICO grew total assets by 9.96% year on year, from N222.38 billion in the first quarter of 2021 to N244.52 billion at the end of the first quarter of 2022. The balance sheet growth was financed by a 13.57% increase in the insurer’s shareholders fund and a 9.2% surge in total liabilities.
AIICO Plc shareholders fund printed at N43.58 billion in the first quarter of 2022, from N38.37 billion 12-month ago. Also, its total liabilities rose to N200.94 billion from 184.01 billion in the comparable period in 2021. #AIICO: Analysts Uphold Modest Outlook as Underwriting Profit Falls
