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BusinessDay 10 Apr 2018

14 BUSINESS DAY

14 BUSINESS DAY COMPANIES & MARKETS C002D5556 Tuesday 10 April 2018 AIICO Insurance disappointing performance could stir hornet’s nest BALA AUGIE AIICO Insurance Nigeria Plc’s recurring disappointing performance in the past few quarters due to its inability to grow premium income and curtail costs could stir up a hornet’s nest among shareholders and investors. The Nigerian insurer has been grappling with deteriorating underwriting performance as spiraling combined ratios (CR) are increasingly eroding profit margins. Also, the insurer has failed to utilize the resources of its owners in generating higher profit while each Naira invested in revenue is yet to bolster profit. Analysts say such recurring underperformances calls for urgent strategies such as the introduction of market penetrating products, employment of skilled workforce, and adoption of latest technologies to trim costs. Perhaps more worrisome is that AIICO Insurance’ total operating expense (sum of total underwriting and management expenses as a percentage of net premium income) is 1.81 times net premium income. In the common law of torts, res ipsa loquitur is a Latin word that connotes “let the thing speak for itself” but in this case the numbers will validate the first five paragraphs. For the year ended December 2017, AIICO Insurance recorded an underwriting loss of N4.02 billion from an underwriting profit of N12.44 billion the previous year. Receding premium income and rising claims expenses are responsible suppressed margins. Total claims expenses spiked by 58.87 percent to N20.77 billion in December 2017 from N13.09 billion as at December 2016. Claims ratio otherwise known as loss ratio surged to 118.95 percent in the period under review from 48.57 percent for the year ended December 2016. A loss ratio of 119 percent, therefore, means AIICO Insurance is in poor financial health and not profitable because it is paying more claims than it receives in revenue. Expectedly, combined ratios (CR) climbed to 135.65 percent in the period under review from 60.58 percent the previous year. The combined ratio after policyholder dividends ratio,” is a measure of profitability used by an insurance company to gauge how well it is performing in its daily operations. The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them. A ratio below 100 percent indicates that the company is making underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums Investors and shareholders will be bemused that a firm with the largest written premium among insurer quoted on the floor of the bourse is unable to use deploy its resources in generating higher profit. However, AIICO Insurance could lose that top spot when other firms start releasing financial statement on the website of the NSE. The tough and unpredictable macroeconomic environment and inability to lunch new market penetrating products undermined the insurer’s revenue. Gross premium income spiked by 29.02 percent to N21.29 billion in December 2017 as against N30.02 billion as at December 2016. Net premium incomes were down 34.40 percent to N17.50 billion in the period under review as against N26.68 billion as at December 2016. AIICO Insurance’s net income slumped by 87.48 percent to N1.28 billion in December 2017 from N10.23 billion in the period under review. The Nigerian insurer’s net margin fell to 7.38 percent in the period under review from 38.41 percent as at December 2016; raising concerns about its ability add value to shareholders’ wealth. AIICO Insurance has failed to utilize the resources of its owner in generating higher profit as return on equity (ROE) fell to 11.69 percent in December 2017 from 123.26 percent the previous. Law Union and Rock Insurance posts 67% profit in 2017 STEPHEN ONYEKWELU The Board of Directors of Law Union and Rock Insurance Plc have recommended a 4Kobo per share dividend for approval by its shareholders at its next annual general meeting. This is contained in the Company’s audited financial statements for the year ended December 31, 2017 which was approved by the National Insurance Commission on March 29, 2018 LUR posted a Profit Before Tax of N1.099billion, representing a 66.80 percent growth from the PBT recorded in 2016 performance. Also, its profit after tax jumped by 62 percent to N910million from N561million recorded in 2016 financial year. The growth in the bottom line was mainly driven by its investment income, signposting the company’s improved liquidity. The Gross Premium Written stood at N4.252billion representing an 8 percent modest improvement from N3.936billion recorded in 2016. The Company’s total assets also posted 16.90 percent growth as it stood at N10.031billion from N8.58billion reported in 2016 financial year. Also, the Shareholders funds grew by 28.60 percent from N5.03billion to N6.47bilion. Within the same period, its earning per share rose by 31 percent to 21Kobo from 16Kobo reported in 2016. In demonstration of its commitment to reward its human capital for its invaluable contribution to the company’s performance, the Board has set aside 7.50 percent of the 2017 Profit After Tax as profit sharing pool for all members of its staff. With a dividend yield of 5.48 percent at current market price, LUR is positioned within the group of good dividend-yield stocks such as Custodian and Allied Insurance, Guaranty Trust Bank Plc and Zenith Bank Plc within the financial services sector. This is coupled with its sustained high standard of corporate and ethical governance. The Company has consistently posted improved incremental growth within the last three financial years, with the 2017 performance recording the highest improvement. This is in spite of the turbulent economic climate over the periods. ‘Nigeria still Africa’s biggest market’ Transsion Holdings, giant mobile phone (Tecno Mobile), has described Nigeria as still the biggest market in Africa in spite of some challenges. Andy Yan, Vice President, Transsion Holdings, parent company of Tecno Mobile, made the assertion in Lagos at Tecno’s Global Spring Launch. The News Agency of Nigeria (NAN) reports that Tecno unveiled Camon X Pro smartphone at the event held at the Andy Yan, vice president, Transsion Holdings Eko Eko Hotel and Suites, Lagos. Yan said that Nigeria had provided a huge market for the organisation in spite of challenges of fluctuating foreign exchange. The official said that the company had contributed to the growth of Nigeria’s economy through job creation. According to him, Tecno has also impacted on Nigeria through its corporate social responsibility. Yan called for consistent policies to encourage investment in Nigeria, saying that unstable business environment discouraged investment. Yan said: “Investors, most importantly, must have a stable environment and policies to do businesses. “Where there is no continuity as regards policies and business relationship, businesses will be affected. “We are trying to keep very healthy relations, discussing the possibilities and opportunities to impact on the society,” he said. He said that fluctuating foreign exchange been a problem to businesses. Yan said that the company regularly carried out a study of the Africa business environment before manufacturing more products. “This has kept the company going in spite of challenges.” According to him, the Tecno Camon X Pro smartphone has unique security features such as Face ID. Yan said that the Face ID could be used to unlock the phone when lighting up the screen by grasping the face formation. He said that the face formation had 50ms recognition rate and was more functional than the fingerprint identification feature. “At Transsions, we do not adopt a one-size-fits-all approach in developing our products,” he said.

Tuesday 10 April 2018 C002D5556 BUSINESS DAY 15 COMPANIES & MARKETS Ingenious AXA Mansard Insurance earns N2.01bn from Treasury bills Business Event BALA AUGIE Interest income from short term government securities has lifted AXA Mansard Insurance Plc’s full year profit as the insurer continues to intensify its investment strategy with a view of increasing share of the market. For the year ended December 2017, the Nigerian net income increased by 1.57 percent to N2.67 billion as against N2.63 billion as at December 2016. The slight growth at the bottom line (profit) was driven by a N2.01 billion interest income from short term government securities that make up 39.33 percent of investment income. In short, investment income increased by 37.86 percent in the period under review, which make up for a drop in underwriting profit as the insurer continues to grapple with rising claims and underwriting expenses. Deposit Money Banks (DMO) and some insurance firms in Africa’s most populous nation made money from fixed income on short term government securities when yields were attractive in 2017. High yields on Net Treasury Bills (NTBs) issued in 2017 (around 13-14 per cent on 90-day bills) had attracted investors and helped to support the naira. Yields on 30 days, 60 days and 365 days short-term paper stood at 14.70 percent, 15.30 percent, and 15.80 percent on Friday, according to data from FMDQ Website. However, Nigerian banks may find it more difficult to sustain their profitability this year, given the decline in net treasury bill issuance by the federal government this year. This mean could the end of free money for AXA Mansard and other registrars that had made money from short term government securities. “We expect falling treasury bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018,” said Flitch. Further analysis of AXA Mansard’s financial statement shows underwriting profit declined by 14 percent to N2.58 billion in December 2017 from N3 billion the previous year. The Nigerian insurer’s claims expenses surged by 69.23 percent to N15.84 billion in the period under review as against N9.36 billion as at December 2016. Claims ratios moved to 53.39 percent in the period under review from 67.27 percent as at December 2016. AXA Mansard’s gross written premium increased by 29.50 percent to N26.82 billion in December 2017 from N20.71 billion as at December 2016. Net premium income followed the same growth trajectory as it increased by 25.95 percent to N13.78 billion in the period under review from N10.95 billion as at December 2016. AXA Mansard has a solvency ratio of 147.08 percent in the period under review. In other-words, the insurer can meet claims payment and other obligation. AXA Mansard Insurance Plc has agreed with IFC, Africa Capital Alliance (a Private Equity fund) and other strategic investors to finance the construction of a 150-bed hospital and two 10-bed clinics in Lagos. Upon completion, the Project will be one of the largest and best resourced private hospitals in Nigeria and will provide a variety of inpatient and outpatient healthcare services. The project is estimated to cost circa N28 billion and would be funded through an equal mix of equity and debt. L-R: Yinka Adelekan, executive director, Agusto & Co; Tunji Kazeem, chief risk officer, NSE, representing Oscar Onyema, chief executive officer, Nigerian Stock; Vivien Shobo, managing director, Agusto & Co; Isaac Babatunde, executive director, Agusto & Co; Rita Emoefe, associate director, Agusto & Co, at the Nigerian Stock Exchange closing ceremony by the Agusto & Co team in Lagos. Ituah Ighodalo, senior pastor, Trinity House (l); Mike Okonkwo, presiding bishop, TREM (r), presenting an award to Teresa Ebuzaju Chukuma (m), she being honored for her immensed contribution to education in Ngeria, at the Word and Power conference with the theme “ Enter into a New season” in Lagos. Pic by Olawale Amoo L-R: Emmanuel Eze, executive director, /chief technology officer, System Specs Limited; Ladi Ogunneye, past president, NCS Computer Society, and James Emadoye, president, ISPON at the 2018 president’s dinner with theme, The Fourth Industrial Revolution, a golden opportunity for Nigeria in Lagos. Trump mulls $100bn more tariffs on China goods President Donald Trump said on Thursday he had instructed U.S. trade officials to consider $100 billion in additional tariffs on China, again ratcheting up tensions with Beijing. Trump said in a statement the further tariffs were being considered “in light of China’s unfair retaliation” against earlier U.S. trade actions that included $50 billion of tariffs on Chinese goods. In a statement, Trump said the U.S. Trade Representative had determined that China “has repeatedly engaged in practices to unfairly obtain America’s intellectual property.” Financial markets have swung wildly over the past few days in response to fears of escalating trade tensions between the world’s two biggest economies. U.S. stock index futures fell in reaction to Trump’s latest statement. Before the latest announcement, U.S. lawmakers had reacted with mounting concern on Thursday over the threat to the American agricultural sector from the trade confrontation with China. L-R: Abdulazeez Ismail, area sales manager; Samuel Akinwoye, regional medical detailing manager; Ololade Jesufemi, junior brand manager, Three Crowns Milk; Omolara Banjoko, senior brand manager, Three Crowns Milk; Abdulfatah Adebayo, regional sales manager, and Ehis Emokhare, media manager, all of FrieslandCampina Wamco, during the Three Crowns Fitness Challenge, Ibadan Marathon in Ibadan.

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