NEM Insurance reported a year-on-year decline in its after-tax profit in 2021 of 13% to close at N4.4 billion despite increasing its gross premium for the period. However, on a quarterly basis, profit fell 42% to close at N2.3 billion.
The insurer’s unaudited financial statements on the Nigerian Stock Exchange show that this is due to changes in the financial statements during the period, in particular underwriting expenses which lowered the underwriting profit for the year. .
According to the report, the total gross written premium was valued at 27 billion naira in 2021, a high of 5 billion naira from 22 billion naira the previous year. However, an unearned premium of 600 million naira pushed the gross premium earned to 26.7 billion naira, or 5 billion naira from what was reported in 2020.
The strong 2021 earnings reflect a recovery from the COVID year which saw many policyholders withhold premiums as they had to prioritize their preference scale in 2020.
Reinsurance premium of 7.2 billion naira last year led to net premium income of 19.4 billion naira compared to 15.9 billion naira in 2020 on the back of 5.8 billion outlay of reinsurance.
Net underwriting income closed at 20.9 billion naira after deductible fee and commission income at 1.4 billion naira, a slight high from 1.1 billion naira a year earlier.
Technical profit closed at 6.6 billion naira in 2021, compared to 5.98 billion naira in the same period the previous year. Analysis shows that this was largely driven by activities in underwriting spend at N8.3 billion, which is a significant year-on-year high of 67%.
This means that the insurer spent more on business-related expenses than actual claimed expenses valued at N6.1 billion during the period, and at the same rate as the amount in the previous year.
Other items such as investment income recorded 1.13 billion naira, a slight increase from 1 billion naira, while other income was valued at 484 million naira during the period. In addition, other operating and administrative expenses were valued at N3.3 billion, resulting in a pre-tax profit worth N4.4 billion.
Stock rebuild boosts market value
Nairametrics previously reported that the insurer suspended trading in the Nigerian foreign exchange market in December to run a stock rebuilding exercise between December 10 and December 29.
The exercise led to an upward revision of the par value of the share from N0.50 to N1.00 by consolidating two (2) shares held by each shareholder into one (1) share.
A quick review by Nairametrics shows that during the reporting period there was an upward float revision in the company’s valuation from N8 billion to a new N8 billion. Meanwhile, during the reconstruction, the valuation increased further.
To date, the total market capitalization of the insurance company stood at N16 billion.
What does that mean
While stock reconstruction or stock consolidation is used to reduce the number of shares outstanding while proportionally increasing their price without affecting the total book value of those shares, the exercise by NEM Insurance has not necessarily led to a rise in the company’s valuation.
The advance was triggered by investors increasing liquidity in the shares, making them marketable and attractive to sellers.