AXA Mansard Insurance PLC: Investment income and profit on investment contracts greatly drive profitability
Mansard Insurance Plc. is a member of the AXA Group, the worldwide leader in insurance and asset management with 157,000 employees serving 102 million clients in 56 countries. The company was incorporated in 1989 as a private limited liability company and is registered as a composite company with the National Insurance Commission of Nigeria (NAICOM). The Company offers life and non-life insurance products and services to individuals and institutions across Nigeria whilst also offering asset/ investment management services, medical insurance solutions and pension fund administration through its three subsidiaries Mansard Investments Limited, Mansard Health Limited and Penman Pensions limited. The company was listed on the Nigeria Stock Exchange in November 2009 and has Market Capitalization in excess of N31 billion thereby remaining the biggest insurance company on the Nigerian Stock Exchange. The company released its third quarter results, for the year period ended September 30th 2016, an impressive performance in both top-line and bottom-line earnings.
INCREASE IN GROSS PREMIUM DRIVES NET UNDERWRITING INCOME
For the third quarter period ended September 2016, AXA Mansard reported an increase of 25.48% in gross premium written to N16.94 billion from N12.48 billion in the corresponding period of 2015, despite stiff competition in the Nigerian insurance sector with regards to the sales of various insurance packages and products. The significant growth in gross premium was driven by an increase of 22.04% in gross premium income to N15.23 billion in September 2016 from N12.48 billion in September 2015. However, reinsurance expenses also grew by 31.09% to N6.78 billion from N5.17 billion over the period. Despite the increase in reinsurance expenses, the strong growth in gross premium income resulted in a growth of 15.63% in net premium income to N8.45 billion from N7.31 year on year. Furthermore, the company’s fee and commission income on insurance contracts decreased moderately by 1.87% to N728m in September 2016 from N742m in September 2015; however, net underwriting income for the period ended September 2016 grew by a significant 14.02% to N9.18 billion from N8.05 billion in the corresponding period of 2015.
INCREASE IN UNDERWRITING EXPENSES WANES UNDERWRITING PROFIT
The company’s gross claims expenses increased massively by 28.07% to N7.11 billion in September 2016 from N5.55 billion in September 2015 while claims expenses recovered from insurers also increased significantly by 32.58% to N1.80 billion from N1.36 billion over the period. Expectedly, net claims expenses also increased by 26.61% to N5.30 billion in the period ended September 2016 from N4.19 in the corresponding period of 2015. On the other hand, underwriting expenses increased by 12.07% to N1.54 billion from N1.38 billion over the period. However, due to the significant rise in claims expenses and claims expenses recoverable, net underwriting expenses grew by 20.25% to N6.90 billion in September 2016 from N5.74 billion in September 2015. However, due to the higher expenses, the company’s underwriting profit decreased slightly to N2.28 billion in September 2016 from N2.31 billion achieved in the corresponding period of 2015; reflecting a slight change of 1.47%.
INCREASED EXPENSES FAIL TO IMPEDE SURGE IN EARNINGS
Finance cost for the period ended September 2016 rose slightly by 5.61% to N337m from N319m recorded in the corresponding period of 2015. However, other operating expenses increased by 7.93% to N1.47 billion from N1.36 billion over the period; despite the increase in operating expenses, pre-tax earnings increased substantially by 86.94% to N3.71 billion in September 2016 from N1.99 billion in September 2015. Furthermore, income tax expense for the period ended September 2016 rose to N673m from N209m in September 2015; net income also followed suit with a massive increase of 71.04% to N3.04 billion from N1.77 billion over the period. Thus, the company’s net Income margin rose to 17.94% in September 2016 from 13.16% in September 2015 while pre-tax margins also rose to 21.92% from 14.71% over the period. The company’s return on assets (ROA) grew slightly to 5.31% from 3.47% while its return on equity (ROE) also followed suit to increase to 16.95% from 10.21%%.
STRONG ASSET QUALITY
The company’s balance sheet shows positive changes in total assets, net assets and total liabilities, as at September 2016, when compared to the corresponding period of 2015. Total assets grew by 11.78% to N57.24 billion in September 2016 from N51.21 billion in December 2015. The key drivers of the company’s total assets were a 127.15% increase in trade receivables to N1.56 billion from N686m, 48.70% increase in Reinsurance assets to N7.52 billion from N5.06 billion and a 42.18% rise in investment property to N13.09 billion from N9.21 billion in December 2015. On the other hand, the company’s total liabilities shows a growth of 14.66% to N36.22 billion in the period ended September 2016 from N31.59 billion in December 2015. The key drivers of the increase in liabilities were an increase of 23.43% in insurance liabilities to N15.94 billion from N12.92 billion, and a 53.14% rise in trade payables to N2.51 billion from N1.64 billion during the year under review. Expectedly, the company’s net assets grew by 3.01% to N17.94 billion from N17.41 billion during the period under review.
WE RECOMMEND A HOLD
Nevertheless, Axa Mansard Insurance Plc delivered an impressive performance despite harsh and unstable business terrain. The potential of the insurance sector in Nigeria remain relatively huge. We believe that the Company’s management put in place an admirable structure in terms of compliance, customer acquisition, retention and capacity building to take advantage of the identified opportunities in the sector and towards delivery of efficient performance which strengthens earnings, income generation capacity and growth in liquidity base. This creates an opportunity where the company can deliver high level of product innovation, operational excellence and create an opportunity for expansion, into other markets would boost performance significantly beyond current results. Based on our review of the company’s financials, we revise our projected gross earnings and Net earnings to N20.02 billion and N2.92 billion respectively for financial year end 2016. This leads to a forward EPS of 0.33. Using a relative Price to Earnings Valuation (PE) and (NAV) Net Assets Valuation method, we arrive at a 3-month target price of N1.58. Since this represents a downside potential of 5.26% on the current price, we therefore place a HOLD recommendation on AXA Mansard Insurance Plc shares.
NEVERTHELESS, AXA MANSARD INSURANCE PLC DELIVERED AN IMPRESSIVE PERFORMANCE DESPITE HARSH AND UNSTABLE BUSINESS TERRAIN