The Nigerian insurance industry is navigating a challenging macroeconomic environment, characterized by inflation, high interest rates, the removal of fuel subsidies, and the devaluation of the naira. These factors have significantly reshaped the landscape, impacting claims costs, operating expenses, investment income, profitability, and investor sentiment.
Despite these hurdles, AIICO Insurance Plc and NEM Insurance Plc have demonstrated resilience, posting strong financial results and maintaining healthy share price performances.
Financial Performance Highlights
For the first nine months of 2024, AIICO Insurance exceeded its insurance revenue forecast by 25%, reaching N76.98 billion, and surpassed its pre-tax profit forecast by 41%, reporting N13.633 billion. Similarly, NEM Insurance outperformed expectations with a 36% revenue increase to N69.518 billion and a 50% jump in pre-tax profit to N15.709 billion.
In terms of share price performance, AIICO showed a 36% year-to-date gain in 2023 and continued the momentum into 2024, with a 50% increase as of November 27, 2024. NEM, on the other hand, recorded a 40% gain in 2023 but experienced a more modest 34.92% increase in 2024.
Revenue and Profitability
Both companies demonstrated impressive revenue growth. In 2023, their combined insurance revenue reached N124.746 billion, marking a 45% year-on-year increase. In the first nine months of 2024, the aggregate revenue surged 64% to N146.502 billion.
Breaking it down further:
- AIICO Insurance: Generated N76.98 billion in insurance revenue for 2024, exceeding forecasts by 25%, but faced challenges in its core operations, reporting a loss of N2.457 billion from insurance services.
- NEM Insurance: Outperformed expectations with N69.518 billion in insurance revenue, achieving a 36% higher result than forecast, and posted a strong insurance service profit of N18.44 billion.
Investment Income and Net Results
AIICO outperformed NEM in investment income, posting N24.815 billion in the first nine months of 2024, up 28% year-on-year. This was driven by foreign exchange gains of N11.524 billion. In contrast, NEM generated a more modest N2.941 billion in investment income, with foreign exchange gains of N308 million, leading to net results of N2.503 billion.
However, NEM’s stronger performance in core insurance services resulted in combined net insurance and investment results of N20.922 billion, surpassing AIICO’s N13.775 billion.
Valuation and Investment Considerations
Both companies are priced below the average insurance company, making them appealing for investors seeking stocks priced below market value. However, each stock presents distinct strengths and risks:
- NEM Insurance: With a price-to-book (P/B) ratio of 0.87x, NEM’s stock is priced slightly higher than AIICO’s. NEM stands out for its higher profitability, with a return on equity of 67%, suggesting a more effective conversion of investments into profits. NEM also boasts a strong price-to-free-cash-flow (P/FCF) ratio of 3.3x, indicating healthy cash generation for reinvestment or dividends.
- AIICO Insurance: AIICO’s stock is cheaper, with a P/B ratio of 0.69x. However, AIICO’s negative price-to-free-cash-flow ratio of -2.12x indicates the company is not generating enough cash to fund its operations and growth, which could pose risks for future capital needs.
Share Price and Dividend Yield Performance
Both AIICO and NEM have delivered returns that surpass current inflation, presenting solid investment opportunities. AIICO has achieved a 54.17% total return in 2024, which will appeal to growth-focused investors. Meanwhile, NEM offers a higher dividend yield of 7.06%, making it a stable choice for income-seeking investors.
In conclusion, both companies have demonstrated resilience and strong performance despite the challenging economic backdrop. AIICO offers more significant growth potential, while NEM presents a more stable option with attractive dividend yields. Investors should carefully consider these factors in light of their investment goals and risk tolerance.
