NEM: Stability in Q1 performance after 2020FY profit growth
NEM Insurance Plc kept operating momentum stable in the first quarter ended March 31, 2021 after an exceptional growth in full year ended December 31, 2020 in which profit more than doubled.
Despite strong increases in claims and underwriting expenses in the first quarter, the company’s management balanced costs with incomes and maintained a firm position on earnings.
The strength of the company is coming from growing earnings and this is happening for the second financial year.
It raised net premium income by 45 per cent to N7.04 billion in Q1 2021 from N4.84billion recorded in Q1 2020 , accelerating from more than 25 per cent growth at the end of 2020.
The increase represents additional revenue of N2.2 billion over the review period. The increase was however fully consumed by increases in net claims and underwriting expenses over the same period. Cost saving initiatives enabled management to defend profit at over N1 billion at the end of the first quarter.
The risk underwriting firm registered a distant height in profit last year and its first quarter results are promising to keep up the momentum for the current year.
Accelerating revenue and moderating costs are the combination that is keeping profit elevated for the second year.
Operating expenses dropped to N817.15million in Q1 2021 from N956.58million in Q1 2020, going down for the second year and this enabled management to counter declines in underwriting profit and investment earnings and kept profit up.
However, three factors critical to the profit advance last year were missing in Q1 2021. One is fair value gain of over N1 billion, which was completely absent in Q1 2021.
Another is an increase in investment income that gave way for a drop in the first quarter. Also, a major increase in underwriting expenses has taken the place of a decline last year.
Keeping profit up against the odds is the strength in operations that NEM Insurance put up in the first quarter. The company’s management expects that the earnings growth momentum would pick up further in the course of the year.
The company’s first quarter report for the 2021 financial year shows a gross premium income of N10 billion. This represents an increase of 26 per cent year-on-year and an accelerated growth from 12.6 per cent at the end of the 2020 financial year.
A drop of over 32 per cent in unearned income powered the growth of net premium income, which rose by 45.4 per cent year-on-year to N7 billion at the end of March 2021.
Fee and commission income boosted net underwriting income to N7.5 billion. The figure represents an increase of 42 per cent in net underwriting income over the review period.
Claims and underwriting expenses exhibited rampaging growth patterns during the review period. Net claims expenses rose by over 90 per cent year-on-year to N2.5 billion and underwriting expenses grew by 55 per cent to more than N3 billion.
The growth in net claims expenses in the first quarter has far outpaced the increase of 20.5 percent the company recorded in the 2020 full year. The increase in underwriting expenses also compares with an increase of only 8 per cent at the end of last year.
The significant increase in total underwriting expenses undermined underwriting profit at the end of the review period. Underwriting profit went down by about 6 percent to close at N1.8 billion in the first quarter.
Investment income, declined by 5 per cent to N288 million at the end of the quarter against an increase of 14 per cent at the end of last year.
A windfall of N1.1 billion last year from net fair value gain was completely out of the earnings picture so far in the current financial year.
NEM Insurance closed the first quarter operations with an after tax profit of over N1 billion, which is marginally up from the corresponding figure last year.
Stepping up profit growth in the course of the year will depend on the extent management could tone down the high growth in total underwriting expenses and keep revenue accelerating through the year.
The company has sustained profit recovery and growth for the second year, having improved profit by 17 per cent in the preceding year. NEM Insurance is sustaining a rebound in operations for the third straight year since it suffered a 27 per cent drop in after tax profit in 2018.
Despite decline by some listed insurance companies NEM Insurance has improved on its performances both in income statement and balance in result and accounts for the period ended December 31, 2019.
The Insurance company operated a vibrant underwriting business in the year closing with gross premium written in the region of N22 billion with total assets crossing the N30billion mark in 2020 financial year.
That, plus a big and improved underwriting profit in excess of N5.98 billion, stood the company out in a year that many insurance underwriters delivered decline in profit while some reported losses.
The general risk underwriter closed the 2020 operations with one of the biggest profit advances in recent years.
That ranks it top in the insurance sector as a company with one of the most improved earnings results for the financial year under review.
The strength of the Insurance company’s outstanding performance came from top-mid impressive performance that reinforced profit capacity.
With impressive performance, the management of NEM Insurance proposed a final dividend of 9 Kobo per 50 Kobo, while in 2019 financial year, a final dividend of 15 kobo per 50 kobo ordinary share.
