AIICO Insurance reported impressive profit growth in 2024, but a closer look reveals deep challenges in its core business.
The company’s underwriting performance struggled due to rising claims and insurance-related expenses.
While investment income helped boost overall profit, AIICO’s core insurance operations posted losses.
With a projected recovery in the first half of 2025, the big question is whether AIICO can truly turn things around or if its reliance on investment gains will continue to overshadow its underwriting weaknesses.
Underwriting struggles continue
AIICO recorded an insurance revenue of N108.268 billion, a 49% YoY growth in 2024, but insurance service expenses jumped 33% YoY to N87.241 billion.
The main culprit was claims payments, which totalled N75.327 billion, with life insurance claims alone reaching N58.092 billion.
Notably, life insurance revenue stood at N51.911 billion, meaning the company paid out more in claims than it earned from this segment, a worrying sign for profitability.
On the other hand, the non-life insurance revenue of N55.151 billion was higher than the non-life claims of N16.468 billion, showing that this segment was relatively more stable. However, overall underwriting results remained negative.
This pushed AIICO’s net insurance results into negative territory, recording -N3.520 billion, despite a foreign exchange gain of N7.168 billion on policyholder assets.
To make matters worse, net expenses from reinsurance contracts skyrocketed by 180% YoY to N24.547 billion, further pressuring underwriting margins. Reinsurance is meant to help insurers manage risk, but in AIICO’s case, it became a major cost burden.
Additionally, net finance expenses from insurance contracts surged by 115% YoY to N19.733 billion, further worsening the situation.
These costs, likely tied to delayed payments or obligations within AIICO’s insurance operations, dragged the company’s net insurance results down to -N22.556 billion.
This highlights a growing concern: AIICO’s core insurance business is struggling. Without its investment income, which provided a much-needed boost, the company would not have been profitable.
AIICO should be able to pay claims while still making a profit. If it is is consistently paying more in claims than it earns, it means something is wrong.
AIICO may need to review its pricing strategy, improve risk assessment, or find ways to reduce claims expenses. Otherwise, its profitability could remain under pressure in the long run.
Profitability driven by investment gains
Despite these underwriting challenges, AIICO reported a 21% YoY increase in profit before tax (PBT) to N15.139 billion, thanks to a 69% YoY surge in net investment income to N45.296 billion.
This was largely fueled by investment income of N41.980 billion, +35% YoY, and foreign exchange gains (N11.148 billion, +1.18% YoY). Without this investment boost, the company’s bottom line would have been significantly weaker.
Strong cash flow, but risks remain
Despite its underwriting struggles, AIICO Insurance managed to generate a strong positive cash flow from operating activities of N43.828 billion, representing an impressive 223% year-on-year (YoY) growth.
This means that, despite paying out high claims and facing rising costs, the company still had enough money coming in from its operations to keep things running smoothly.
Outlook for 2025: A path to recovery?
For Q1 2025, AIICO projects a gross written premium of N50.545 billion and insurance revenue of N27.880 billion.
Insurance service results are expected to return positive at N138 million, but net insurance finance results are still projected at -N9.617 billion.
- Investment income remains a key profit driver, with a forecasted N11.975 billion, pushing pre-tax profit to N2.660 billion.
- Looking ahead to the first half of 2025, AIICO is projecting a positive insurance service result of N6.679 billion, which suggests an expected improvement in its core insurance operations. This could be a sign that the company is taking steps to manage claims better and improve underwriting performance.
- However, despite this potential turnaround, net insurance finance results are still expected to be deeply negative at -N14.490 billion, meaning AIICO will still face significant financial strain from its insurance-related financing costs.
- This projected figure already accounts for 76% of the company’s total net insurance finance loss in 2024, indicating that these challenges are far from over.
While the improvement in insurance service results is encouraging, the continued heavy finance losses could limit how much of this turnaround actually translates into stronger overall profitability.
A profit story with warning Signs
AIICO’s strong profit growth in 2024 is largely driven by investment income, masking deep underwriting challenges.
- The company’s reliance on investment gains raises concerns about long-term profitability, especially if claims and reinsurance costs remain high.
- While AIICO projects a recovery in 2025, investors should watch whether the core insurance business improves or remains a weak spot hidden beneath investment-driven profits.
- Despite these concerns, AIICO’s share price has gained 11.9% year-to-date, showing investor confidence.
However, the stock has lost 6% in the past four weeks, suggesting that the market is becoming more cautious about its underlying challenges.
