Oasis Insurance may lift revenue and profit in 2014

Oasis Insurance’s first quarter operations seems to rekindle hopes for the much disappointing insurance sector. The company is out of the red at which it closed in 2013 and in place of a drop in revenue last year, an outstanding growth in gross premium income may be expected at the first quarter growth rate.

Almost one-half of the company’s gross premium income in all of 2013 operations has been earned in the first quarter and a big return to profit is expected to significantly offset the loss of 2013. At the current growth rate, Mr. Babatunde Oshadiya, managing director/chief executive officer of the company will have better news for shareholders at the end of this year, though dividend prospects remain low.

The company closed its first quarter business with an increase of 20.3% increase in gross premium income, which amounted to about N609 million. This is already 49% of the full year gross premium income the company generated in 2013. If the current growth rate is sustained to full year, gross premium income is expected to more than double at N2.57 billion for Oasis Insurance in 2014. This will compensate for a drop of 22.5% in gross premium income to N1.24 billion in 2013.

Against the 20.2% increase in gross premium income, after tax profit grew by 163.1% to N94 million over the corresponding quarter last year. While the company earned N35.7 million net profit in the first quarter of last year, it eventually closed the year at a loss of N71.2 million.

If the first quarter growth rate is maintained to full year, net profit is expected to be in the region of N388 million for Oasis Insurance in 2014. This will be an outstanding rebound from the loss figure in the preceding year and well ahead of the last profit of N240.4 million the company posted in 2012.

The much stronger growth in profit than revenue in the first quarter follows major cost savings in two main cost lines of the company. One is net claims incurred, which dropped by 49% to N62 million during the review period. The drop permitted a leap of 80.1% in underwriting profit, which amounted to N190 million. This is reversing the drop of about 29% in underwriting profit at the end of 2013.

The other expenditure element that dropped to save revenue is management expenses/provisions for doubtful accounts, which dropped by 30% to N76 million in the first quarter. Its share of net premium income has fallen from 73% at the end of 2013 to 26.3% in the first quarter.

The company earned 1.4 kobo in the first quarter and is expected to close the current year with earnings per share of 6.0 kobo. That isn’t going to permit any reasonable dividend to shareholders but at least it raises hopes that the company is restarting recovery and growth.

One major draw back for the company and the insurance sector generally is that investment income remains disappointing. It dropped by over 57% in 2013 and is down by about 78% in the first quarter. Further recovery of the stock market, which is expected, could strengthen investment income in the course of the year and step up profit growth as well.

For management to achieve the projected net profit for the year, it needs to earn a minimum of N98 million in each of the remaining three quarters. Net profit margin is good at 32.5% of net premium income in the first quarter. Net premium income however has dropped from 83.7% of gross premium income in December 2013 to 47.5% in the first quarter. Should management improve net premium margin in the subsequent quarters, a much stronger rebound in profit can be expected from Oasis Insurance in 2014.