FX drags Veritas Kapital’s earnings to 10-year low

Veritas Kapital Assurance’s earnings took a hit in 2024 with its profit after tax plunging to N73 million from N2.75 billion in 2023 – the lowest in at least 10 years – due to foreign exchange risks.

Despite a robust 224.7 percent increase in gross written premium, the cost of doing business proved a significant burden on the company thereby eating up its profits.

The over 70 percent depreciation of the naira, high inflationary pressures, driven by high energy prices, and an increase in transportation cost are exacerbating the woes of the company.

According to the company’s full-year financial results, a significant portion of its premiums received and claims paid in foreign currencies such as Euros, British pounds, and US dollars were impacted by the fluctuations in exchange rates.

This hit highlights the challenges of operating in a global market with a volatile currency like the Nigerian naira.

Read also: Veritas Kapital Assurance PAT up 117% Q3

“The functional currency of the company is the Nigerian naira. Veritas Kapital Assurance is exposed to currency risk to the extent that there is a mismatch between the currencies in which premiums and claims are denominated and the respective functional currencies of the Company,” the report said.

It added that the currencies in which these transactions are primarily denominated are the Nigerian naira. However, the company receives some premium in foreign currencies and also pays some claims in foreign currencies such as Euro, British pounds, and United States dollars.

In the company’s report, insurance service expenses rose to N15.98 billion from N5.48 billion at the end of 2023 driven by a surge in claims of N13 billion in 2024.

A further probe of the company’s report showed that it recorded a loss of N2.79 billion in earnings in the fourth quarter of 2024 compared to a profit of N1.43 billion in the same period of 2023 due to its FX exposure.

In the third quarter of 2024, Veritas Kapital Assurance Plc recorded a 117 percent year-on-year increase in profit after tax (PAT), growing from N697.8 million in Q3 2023 to N2.339 billion while Gross Premium Written (GPW) also saw an impressive uptick, climbing from N4.087 billion in Q3 2023 to N18.54 billion in Q3 2024.

In the same period, Nigeria’s insurance industry grew its gross premium written to N1.173 trillion at the end of the third quarter of 2024, a 60.9 percent year-on-year and 44.3 percent on a quarter-on-quarter basis.

NAICOM in its third quarter Bulletin of The Insurance Market Performance revealed that non-life businesses contributed N808.4 billion of the total premium, 68.9 percent growth, while the life business contributed N364 billion, equal to N31.1 percent.

Regardless, Veritas Kapital’s foreign exchange gains of N5 billion and net investment income of N87 billion at the end of 2024 did not add much due to a rise in insurance expenses from insurance contracts issued, other operating expenses, and tax expenses in 2024.