NEM Insurance Expects To Double Q3 Profit At Full-Year

NEM Insurance Plc expects a robust final quarter good enough to double its closing third-quarter profit of N2 billion to N4.1 billion at full year. This means that virtually all the N2.2 billion gross premium income expected to be generated in the fourth quarter would be converted into net profit.

The company’s full-year forecast for the 2021 financial year expects, according to insidebusiness.ng, that its pre-tax profit of N2.4 billion at the end of the third quarter would advance to N4.5 billion at full year while tax expenses would increase fromN379 million to N455 million over the same period.

The company’s expectation is in line with actual performance in the preceding financial year when a final quarter surprise changed its earnings story for the year. A final quarter profit of roughly N4 billion in 2020 accounted for 78 per cent of the full-year profit of over N5 billion the company posted in the year.

NEM Insurance was headed for a profit drop at the end of the third quarter last year but the final quarter windfall powered a long upswing from a profit of N1.1 billion at the end of the third quarter to the full-year figure of N5.1 billion.

The presumptions for accomplishing the feat in earnings performance include a sustained drop in unearned premium, which is a key operating strength for the company this year. Unearned premium income dropped by 41.5 per cent to N1.8 billion at the end of the third quarter, resulting in strong growth of 36.5 per cent in gross premium earned at over N21 billion at the end of the third quarter.

The company’s management expects to top up the gross premium income figure to N23.5 billion at full year. This will be slightly ahead of the N21.7 billion gross premium income the company posted at the end of last year.

Another favourable development underlying the company’s strong final quarter expectation is a drop in reinsurance expenses. A change of direction is expected in respect of reinsurance expenses from increasing as at the end of the third quarter to a decline at full year.

The company ended the third quarter with reinsurance expenses of N6 billion, representing a year-on-year increase of about 16 per cent. The full-year forecast expects that the figure would drop below the third quarter mark to close at N5.7 billion at full year.

A drop in reinsurance expenses in the final quarter will reinforce gross premium earned and result in an outstanding growth in net premium income at full year. Robust growth of almost 47 per cent was recorded in net premium income to close at over N15 billion at the end of the third quarter.

The figure is expected to advance further to nearly N18 billion at the end of the financial year. The company closed with a net premium income of N15.9 billion in 2020.

Further strength on the side of revenue is also expected from fee and commission income that is forecast to grow from less than N1.2 billion at the end of the third quarter to N1.5 billion at full year. That will impact net underwriting income positively, pushing it ahead from N16.5 billion at the end of the third quarter to over N19 billion at full year.

Net underwriting income is already on the part of rapid growth this year at a year-on-year increase of more than 43 per cent at the end of the third quarter. Growth is therefore likely to accelerate further at full-year going by the company’s projection.

Some cost savings are also expected in the final quarter, which makes room also on the side of expenses for the projected doubling of the bottom line in three months. And the main expense lines of claims and underwriting costs are the main targets.

With forecast claims expenses of N6.3 billion for the full year, the closing figure for the year is expected to be virtually unchanged from the nine-month figure of N6.25 billion.

Underwriting expenses are forecast to decline from the third quarter closing figure of N6.3 billion to N6 billion at the end of the year.

The outcome of income enhancements and cost reduction/slowdown in the final quarter is a big leap in underwriting profit. An underwriting profit of N3.9 billion at the end of the third quarter is projected to rise to N6.9 billion at full year.

Investment income was growing reasonably well at the end of the third quarter at 19 per cent to N910 million and management expects to top up the figure to over N1 billion in the final quarter.

The company earned 40 kobo per share at the end of the third quarter with a full a year outlook of 82 kobo per share.

Insidebusiness.ng