A Closer Look at the Insurer’s Financial Strength Amid Rising Claims and Reinsurance Costs
AIICO Insurance Plc has reported an impressive profit growth in 2024, showcasing its ability to generate strong returns. However, beneath the surface, the company’s core insurance operations are facing a significant underwriting crisis, driven by rising claims, reinsurance costs, and finance expenses.
While AIICO’s investment income has helped prop up profitability, its core insurance business is in negative territory. This raises concerns about the long-term sustainability of the company’s growth.
With the first half of 2025 projected to be a critical recovery phase, the big question is: Can AIICO turn things around, or will it continue relying on investment gains to mask its underwriting weaknesses?
Underwriting Struggles: A Profitability Red Flag
AIICO’s 2024 insurance revenue surged by 49% YoY to N108.268 billion, demonstrating strong premium growth. However, insurance service expenses rose by 33% YoY to N87.241 billion, indicating that the cost of running its insurance business is rising at an alarming rate.
The primary culprit behind this increase is the rise in claims payments, which reached N75.327 billion, with life insurance claims alone hitting N58.092 billion.
What’s more concerning is that AIICO’s life insurance revenue stood at just N51.911 billion, meaning that the company paid out more in claims than it earned from life insurance premiums—a major warning sign for profitability.
Breakdown of AIICO’s 2024 Insurance Results:
- Total Insurance Revenue: N108.268 billion (+49% YoY)
- Total Insurance Service Expenses: N87.241 billion (+33% YoY)
- Total Claims Paid: N75.327 billion
- Life Insurance Claims: N58.092 billion
- Non-Life Insurance Claims: N16.468 billion
Reinsurance Costs and Finance Expenses Add More Pressure
Instead of mitigating risk, reinsurance costs skyrocketed by 180% YoY to N24.547 billion, further straining AIICO’s underwriting margins.
Additionally, net finance expenses from insurance contracts surged by 115% YoY to N19.733 billion, putting even more pressure on the company’s balance sheet.
These costs dragged AIICO’s net insurance results into negative territory, posting a loss of N22.556 billion, despite a foreign exchange gain of N7.168 billion on policyholder assets.
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This raises an important concern:
A successful insurance company should be able to pay claims while still making a profit. If AIICO is consistently paying out more than it earns, it suggests inefficiencies in pricing, risk assessment, or claims management.
Investment Gains Save the Day—For Now
Despite these underwriting struggles, AIICO reported a 21% YoY growth in profit before tax (PBT) to N15.139 billion.
This profit increase was not due to insurance operations but rather a 69% YoY surge in net investment income to N45.296 billion.
Key Contributors to AIICO’s Investment-Driven Profitability:
- Total Investment Income: N41.980 billion (+35% YoY)
- Foreign Exchange Gains: N11.148 billion (+1.18% YoY)
- Net Investment Income Growth: +69% YoY
These figures make it clear:
Without investment income, AIICO would have reported a significant loss in 2024.
Strong Cash Flow Amid Rising Costs
One positive takeaway is that despite its challenges, AIICO still managed to generate N43.828 billion in positive cash flow from operating activities—a 223% YoY increase.
This suggests that while its insurance business is struggling, the company still maintains strong liquidity and has the financial capacity to absorb losses.
2025 Outlook: A Path to Recovery or More Struggles?
For Q1 2025, AIICO projects a gross written premium of N50.545 billion and insurance revenue of N27.880 billion.
The company expects insurance service results to return to positive territory at N138 million, a potential sign of improved underwriting.
However, net insurance finance results are still projected to be negative at -N9.617 billion, indicating that financial pressures will persist.
Looking ahead to H1 2025, AIICO expects:
Positive insurance service results of N6.679 billion, indicating a possible improvement in underwriting.
Deep negative net insurance finance results of -N14.490 billion, suggesting that the company’s financing costs remain a major burden.
While AIICO appears to be taking steps to improve underwriting, its continued high finance losses mean that a full recovery remains uncertain.
A Profit Story with Warning Signs
While AIICO’s headline profit figures look impressive, the deeper analysis reveals serious concerns:
- Underwriting remains unprofitable, with claims exceeding revenue in life insurance.
- Reinsurance and finance costs are rising, further squeezing margins.
- Profitability is heavily reliant on investment income, raising sustainability concerns.
Investor Sentiment: Confidence or Caution?
AIICO’s stock price has gained 11.9% year-to-date (YTD), reflecting investor confidence.
However, shares have declined 6% in the last four weeks, indicating growing market caution.
Investors and analysts will be closely watching whether AIICO can:
- Improve its underwriting margins and reduce claims losses
- Lower reinsurance and finance costs
- Sustain profitability beyond investment income
If these challenges persist, AIICO’s long-term growth prospects could be at risk.
For now, the insurer has a path to recovery—but whether it will succeed remains to be seen.
