AIICO Insurance posted impressive profit growth in 2024, but beneath the surface, challenges in its core insurance operations remain. While investment income boosted overall profitability, underwriting performance was weighed down by rising claims and escalating insurance-related expenses.
As the company projects a recovery in the first half of 2025, the key question is whether AIICO can genuinely turn things around or if it will continue relying on investment gains to offset underwriting weaknesses.
Underwriting Challenges: Rising Claims and Costs
AIICO recorded an impressive N108.268 billion in insurance revenue in 2024, marking a 49% year-on-year (YoY) increase. However, insurance service expenses also surged 33% YoY to N87.241 billion, driven by rising claims payments:
- Total claims paid: N75.327 billion
- Life insurance claims: N58.092 billion
- Life insurance revenue: N51.911 billion (meaning claims exceeded earnings in this segment)
- Non-life insurance revenue: N55.151 billion
- Non-life claims paid: N16.468 billion (a relatively stable segment)
Despite strong revenue, AIICO's underwriting results remained negative, with a net insurance result of -N3.520 billion, even after factoring in a N7.168 billion foreign exchange gain on policyholder assets.
Adding to the pressure, net reinsurance expenses skyrocketed 180% YoY to N24.547 billion, turning what should be a risk-management tool into a financial burden. Similarly, net finance expenses from insurance contracts surged 115% YoY to N19.733 billion, further worsening the company’s underwriting position.
Ultimately, these rising costs dragged AIICO’s net insurance result down to -N22.556 billion, highlighting a major weakness in its core business.
Profitability Driven by Investment Gains
Despite underwriting losses, AIICO’s profit before tax (PBT) rose 21% YoY to N15.139 billion, thanks to a 69% surge in net investment income to N45.296 billion.
This investment-driven boost came from:
- Investment income: N41.980 billion (+35% YoY)
- Foreign exchange gains: N11.148 billion (+1.18% YoY)
Without these investment gains, AIICO’s profitability would have been significantly weaker. The reliance on non-insurance income raises concerns about the company’s ability to sustain long-term profitability, especially if claims and costs remain high.
Strong Cash Flow, But Risks Persist
Despite its underwriting struggles, AIICO maintained strong positive cash flow from operating activities, generating N43.828 billion (+223% YoY).
This indicates that while claims payouts and rising expenses remain a concern, the company’s cash inflow from operations remains healthy.
2025 Outlook: Signs of Recovery or More Challenges Ahead?
For Q1 2025, AIICO expects:
- Gross written premium: N50.545 billion
- Insurance revenue: N27.880 billion
- Insurance service results: N138 million (a return to positive territory)
- Net insurance finance result: -N9.617 billion
- Investment income: N11.975 billion
- Pre-tax profit: N2.660 billion
Looking ahead to H1 2025, AIICO projects:
- Positive insurance service result of N6.679 billion, signaling possible improvement in core operations.
- Net insurance finance losses of -N14.490 billion, still a significant burden on overall profitability.
This projected finance loss already accounts for 76% of AIICO’s total net insurance finance loss in 2024, meaning these challenges are far from over.
While an improvement in insurance service results is encouraging, continued finance losses could limit how much this turnaround translates into stronger overall profitability.
Investor Sentiment: Confidence vs. Caution
AIICO’s strong profit growth in 2024 was largely investment-driven, masking fundamental weaknesses in its underwriting business. The company’s reliance on investment gains raises concerns about long-term sustainability, especially if claims and reinsurance costs remain high.
Despite these concerns, AIICO’s stock has gained 11.9% year-to-date, reflecting investor confidence. However, a 6% decline in the past four weeks suggests the market is becoming more cautious about its underlying challenges.
As AIICO works toward stabilizing its core insurance operations, investors should closely watch whether the company can reduce claims expenses, improve underwriting margins, and shift away from heavy reliance on investment gains for profitability.