NEM Insurance Plc Q3 2020 Results: Profit Dwindles as Rising Claims Expenses Stings Harder

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Sunday, November 7, 2020/08:00 PM/ by Adesola Borokinni, Proshare Research  /Header Image Credit: NEM Insurance Plc


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NEM Insurance Plc recorded a significant decline in its profit before tax by -45.29%, as profit before tax declined from N2.42bn in Q3 2019 to N1.32bn in Q3 2020. Furthermore, there was a decline in its investment yield to 3.23% in Q3 2020 while its shareholder funds rose marginally by +0.26% in Q3 2020.

 

Highlights

  • Gross premium written grew by +14.41% to N18.77bn in Q3 2020.
  • PBT declined by -45.29% to N2.42bn in Q3 2020.
  • Equity rose marginally by +0.26% to N14.41bn in Q3 2020.
  • Underwriting profit declined by -31.49% to N2.6bn in Q3 2020.
  • Claims expenses rose by +54.15% to N4.23bn in Q3 2020.

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Profit In A Dump as Insurance Claims Rise

NEM Insurance Plc recorded a significant decline in its profit before tax by -45.29%. Its profit before tax declined from N2.42bn in Q3 2019 to N1.32bn in Q3 2020. A major drag to its profit expansion was a +54.15% rise in claims expenses in Q3 2020 (see Chart 1).

 

Chart 1: NEM Insurance Plc PBT (N'm)

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Source: NEM Insurance Plc, Proshare Research

 

 

Gross Premium Written

It recorded an improvement in its gross premium written in Q3 2020 by +14.41%. Its gross premium written rose from N16.41bn in Q3 2019 to N18.77bn in Q3 2020 (see Chart 2).

 

Chart 2: NEM Insurance Plc Gross Premium Written (N'm)

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Source: NEM Insurance Plc, Proshare Research

 

The major source of its gross premium written was from motor N5.96bn and Fire N4.07bn in Q3 2020. In Q3 2020, there was an increase in gross premium written for motor +22.84%, Marine +49.38%, General Accident +39.44%, and Oil & Gas +13.72%.

 

On the other hand, there was a decline in gross premium written on Fire -15.92%, and Reinsurance inward -7.48% (see Chart 3).

 

Chart 3: NEM Insurance Plc Breakdown of Gross Premium Written (N'm)

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Source: NEM Insurance Plc, Proshare Research


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Core Business Takes A Knock As Underwitting Profit Dips

Its underwriting profit declined by -31.49% in Q3 2020. It declined from N3.79bn in Q3 2019 to N2.6bn in Q3 2020. The decline in its underwriting profit could be attributed to the slump in economic activities which led to the decline in premium collected and an increase in the claims paid during the period (see Chart 4).

 

Chart 4: NEM Insurance Plc Underwriting Profit (N'm)

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Source: NEM Insurance Plc, Proshare Research


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Chewing the Hard Gum of Rising Expenses

A major drag to NEM Insurance Plc profit was the rise in the claim's expenses. Its claim expenses rose by +54.45% in Q3 2020. It rose from N2.74bn in Q3 2019 to N4.23bn in Q3 2020, the highest in the past six years when compared to previous years and in the same quarter (see Chart 5).  

 

Chart 5: NEM Insurance Plc Claim Expenses (N'm)

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Source: NEM Insurance Plc, Proshare Research

 

A further breakdown of the claim expenses reveals that the largest chunk of claim expenses was from Motor N2.56bn and Fire N1.46bn in Q3 2020. There was an increase in fire insurance claim by +1,799.66% and Oil & Gas claims by +396.94% in Q3 2020 (see Chart 6).

 

Chart 6: A Breakdown of Claim Expenses (N'm)

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Source: NEM Insurance Plc, Proshare Research


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Stairways To Reinsurance Hades

There was a consistent rise in reinsurance expenses from Q3 2015 to Q3 2020. Its reinsurance expenses rose by +8.96% in Q3 2020, increasing from N4.79bn in Q3 2019 to N5.22bn in Q3 2020 (see Chart 7).

 

Chart 7: NEM Insurance PLC Reinsurance Expenses (N'm)

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Source: NEM Insurance Plc, Proshare Research

 

The Slow Rising Equity Buffer That Needs Speed

NEM Insurance Plc shareholder's fund rose marginally by +0.26%. Its equity rose from N14.37bn in Q3 2019 to N14.41bn in Q3 2020 (see Chart 9).

 

Chart 8: NEM Insurance Shareholder Funds (N'bn)

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Source: NEM Insurance Plc, Proshare Research


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Investment Yield

NEM Insurance Plc recorded a decline in investment yield in Q3 2020. Its investment yield declined from 6.46% in Q3 2019 to 3.23% in Q3 2020 (see Chart 5).

 

Chart 9: NEM Insurance Plc Investment Yield (%)

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Source: NEM Insurance Plc, Proshare Research

 

The Confusing Mix of Uncertainty and Opportunity

Recent economic disruptions, damage of properties by hoodlums, and economic uncertainties caused by the coronavirus pose serious headwinds for insurance companies going forward, as the growth in claims expenses would most likely continue to trend upwards.

 

The advent of the coronavirus in the Nigerian economy, destruction of properties by looting, and various fire incidents in the country further necessitated the need for insurance cover by corporates, individuals, and businesses. With proper awareness on the need for insurance cover at the heart of discussion by industry experts, gross premium written by insurance companies is forecasted by experts to rise. 



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