From left: Executive Director Technical, AIICO Insurance Plc, Kadri Adewale; Executive Director Operations, Babatunde Fajemirokun and General Manager Retail Life, Sola Ajayi at the event.
.Declares 5k dividend
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Chuks Udo Okonta
AIICO Insurance Plc, has announced its financial results for the year ended December 31, 2017. The company reported gross premiums of N32.1 billion compared to N27.06 billion for the year ended December 31, 2016, an increase of N5.03 billion or 19 per cent and diluted earnings per share for the year were 13 kobo per share, down from 105 kobo per share in 2016.
The Managing Director/Chief Executive Officer, Edwin Igbiti, at a press parley today in Lagos, said the firm experienced significant growth as a company in 2017. “We had to significantly increase our capacity and improve our processes to meet up with customer demands. Over the next few years, we have plans to grow our businesses; this means we must invest in technology and people to ensure our processes are more efficient to increase customer service levels,” he added.
Igbiti, who was represented by the firm’s Executive Director Operations, Babatunde Fajemirokun, noted that the company had improved performance in the life business, stressing that the life business grew by 15 per cent from N18.8 billion to N21.6 billion in 2017, adding that the growth was driven by the increased popularity of the firm’s traditional life products, as the ordinary life business grew 29 per cent in 2017 to N16.4 billion from N12.8 billion in 2016.
According to him, the firm has declared a dividend of 5k per share for shareholders.
He said the non-life business grew from N7.6 billion in 2016 to N8.7 billion in 2017, (N1.1 billion or 15 per cent).
He noted that the company had continued to improve its relationships with agents, brokers and various intermediaries so as to improve performance.
“A change in how premiums in our health management subsidiary are recognized – premiums from some capitated plans, previously unrecognized in the income statement were recognized in 2017. The impact of this change was N1 billion. The gross premium income reduced 29 per cent or N8.7 billion in 2017 to N21.3 billion from N30 billion in 2016.
“For insurance companies, premiums are recognized as income when they are earned. Therefore, the difference between gross premiums written and gross premium income (gross premiums earned) is the change in policyholders’ liabilities or reserves (reflected as change in unearned premiums balance for accounting purposes) with the total policyholders’ liability reflected on our balance sheet through the insurance contract and investment contract liabilities line items.
“For AIICO, especially in our life business, the company books the premiums in Gross Premiums Written and deducts the transfer to policyholders’ liabilities or reserves. The result is Gross Premium Income. The transfers to policyholders’ liabilities or reserves are based on an increase/decrease in the total valuation of our cumulative book of insurance and investment contracts,” he said.
He noted that the reduction in gross premium income in 2017 is largely due to the increase in the size of policyholders’ liabilities in the firm’s life business, adding that Life contract liabilities grew by N9.95 billion in 2017 compared to a decline of N3.7 billion in 2016.
He said this was caused by growth in the business that led to reserves of N5.0 billion to be set up for new business acquired in the year and a decline in the yields from long-term government bonds that led to a decrease in interest rates used to value these liabilities resulting in an increase in policyholders’ liabilities of approximately N4.0 billion and that interest rates used to value the non-annuity policyholders liabilities declined to 13.75 per cent in 2017 from 15.6 per cent in 2016 also, interest rates used to value the annuity policyholders liabilities (PenCom regulated annuities and others) declined to 13.5 per cent in 2017 from 15.5 per cent.
“IFRS requires that we value the liabilities at market-consistent interest rates. Hence, when interest rates rise, the value of our liabilities fall, and when interest rates fall, the value of our liabilities rise. When the value of liabilities falls, there is a release of profits, and when rates fall, there is a transfer from profits (premiums) to reserves. Changes in expense assumptions and other assumptions such as mortality tables (used to determine expected deaths and survival over future years) account for the balance of the movement,” he said.
He said the firm’s gross claims increased by 55 per cent to N23.3 billion from N14.9 billion in 2016, adding that tis was due largely to the increase in benefits payments in the life business. Benefits payments, according to him, grew by N6.1 billion or 53 per cent to N17.6 billion in 2017.
Igbiti posited that the firm’s life business is dominated by contracts with clients that stipulate payouts at pre-determined times. It is therefore logical that as the business grows, payouts grow accordingly, he said.
He said the company is closely monitoring two critical activities which are cash and investment management.
According him, claims in the non-life and health management increased by N1.1 billion each and claims in health management increased due to the recognition of capitated premiums. “These premiums are paid out directly to hospitals and are thus recognized as claims. In the non-life business, our net claims ratio increased marginally in 2017, from 37 per cent to 42 per cent.
“As a company, we realize that we exist, not just to create wealth but to provide protection for our clients in return for premium payments. We, therefore, expect that as the company continues to grow, claims expenses will grow accordingly. The importance of investment operations is thus quite clear,” he said.
He maintained that investment and Other income grew 92 per cent in 2017 to N15.1 billion from N7.8 billion in 2016, stressing that the company will continue to pursue an active investment strategy to take advantage of market conditions and improve its investment performance.
The relatively low-interest rate environment, he said provided an opportunity for the company to make some gains through trading, adding that this was responsible for net realized gains of N5.3 billion compared to N336 million in 2016.
Igbiti stated that the firm’s profit after tax declined to N1.3 billion from N10.2 billion in 2016 and that comprehensive income, however, increased to a profit of N2.4 billion from a loss of N655 million in 2016.
The decline in profits after tax, he said is due mainly to the decline in gross premium income. He maintained that while the company recognizes changes in the value of its liabilities in the income statement, changes in the values of the assets backing these liabilities are recognized in the statement of comprehensive income and that this provides a more holistic picture of the performance as a company.
“The company’s financial position remains robust, remains an area of focus for the company and is an indicator of our capacity and strength. Assets remain adequately matched to liabilities and legacy concerns have been appropriately addressed. Value has been created over the last five years,” he posited.
He stated that the company’s total assets grew 19 per cent to N92 billion in 2017 from N77.5 billion in 2016; total shareholders’ equity also grew 25 per cent to N10.9 billion in 2017 from N8.7 billion in 2016 and that this growth of over N2.2 billion was achieved despite the complete derecognition of deferred tax assets in the balance sheet, which translated to a Net Asset per Share (Book value per share) of N1.58k compared to N1.25k in 2016.