Niger Insurance sustained revenue growth for the second year in 2013 but slipped on the path of profitability also for the second year. The company achieved a reasonable growth in both underwriting profit and investment income in the year but operating cost claimed a lot more revenues during the year. Mr. Dauda K. Adedeji, the company’s chief executive officer, is keeping the company profitable but the downward trend sustained in the past two years isn’t giving the investing public much confidence on the insurance company.
The company recovered from two years of losses in 2011 and posted a net profit of N2.29 billion in the year. Its profit figure fell to N776 million in 2012 and declined further to N627 million at the end of 2013. The downward movement is nevertheless better than the losses posted by AIICO Insurance and WAPIC Insurance in 2013.
The declining profit record of the company is despite the improving revenue performance seen in the past two years. The company closed the 2013 operations with a net premium income of N9.66 billion, which is an increase of 18.8% over the figure in 2012. This is a sustained improvement in revenue since 2012. Net underwriting income improved by 17.5% to N10.31 billion over the review period.
Claims expenses grew ahead of revenue and therefore represented one of the factors that accounted for the decline in profit during the year. At N3.73 billion, net claims expenses rose by 27.2% in 2013 compared to the 18.8% improvement in net premium income. The company devoted 38.6% of net premium income for net claims expenses in 2013, up from 36% in 2012.
A decline of 22.5% in underwriting expenses countered the effect of the increased claims expenses on revenue. This resulted in a moderate increase of 5.1% in total underwriting expenses, which amounted to N5.55 billion at the end of the year. This permitted a strong growth of 36.5% in underwriting profit, which came to N4.76 billion for the year.
The improvement in underwriting profit was supported by the tripling of investment income in the year. Investment income grew by 202.3% during the year to about N668 million. The robust net fair value gains on investment property of over N1.15 billion in the preceding year virtually dried up last year and other operating income dropped by 18.5%.
Management expenses, the second major expenditure head that hit the bottom line in the year, grew by 42.5% to N4.69 billion. Its share of net premium income grew from 40.5% in 2012 to 48.5% in 2013. The absence of impairment on trade receivables in the year against N610 million in the preceding year moderated the impact of management expenses and enabled a marginal improvement of 1.8% in pre-tax profit, which amounted to N716 million for the year.
Growing revenue and falling profit means the company is losing profit margin. Net profit margin declined from 9.5% in 2012 to 6.5% in 2013.
The company earned 8.0 kobo per share in 2013, a decline from 10 kobo per share in 2012. Earnings per share has therefore declined with profit for the second year from the five-year peak of 40 kobo in 2011. The company paid a dividend of 2.5 kobo for the 2011 operations and improved to 3 kobo at the end of 2012. No dividend has been proposed for the 2013 trading. Net assets per share amounted to N1.06 in 2013, improving from 95 kobo at the end of 2012.
Insurance companies need sustained growth in profit and regular dividend payment to improve the liquidity of their stocks in the equities market. Consolidation is slow in the sector but quite pertinent to stimulating recovery and growth of the business.
Major developments in the company’s balance sheet include an increase of 23.4% in available for sale investment to N2.85 billion and an advance of 144.6% in reinsurance assets. Cash and bank balances doubled at N3.68 billion during the review period. Borrowings dropped by 54.8% to N611 million while trade payables surged by 227.8% to N590 million during the same period.
Defined benefit obligation of N1.68 billion emerged in the year and accounted mostly for the increase of about 11% in total liabilities during the year. Retained earnings also advanced by 85.6% to N1.03 billion in the year and led the growth of 11.2% in the company’s equity base.
Adedeji will come under pressure to prevent another fall in the company’s profit this year. Achieving profit recovery in the year will require that he keeps revenue growing and the rate of cost increases declining. This means improving profit margin. If can grow net premium income by 10% in 2014 and raise net profit margin to the 2011 record of about 30%, he can bet to net over N3.0 billion for shareholders this year.
