The top five Nigerian insurers by market capitalisation collectively pooled a net cash flow of N6.94 billion from their operations in the first half of 2022, an improvement over negative cash flow of N11.45 billion reported in the same period in 2021.
BusinessDay analysed the half-year financials of NEM Insurance, AIICO Insurance, AXA Mansard Insurance, Cornerstone Insurance, and Coronation Insurance.
Samuel Banmeke, senior research analyst at Meristem Securities, said the cash flow of the aforementioned insurance firms from operations was positive in general, however, a mixed performance across the companies was observed.
He further added that the major drivers of the positive cash flows from operations were the cash premiums received, the commission received, reinsurance recoveries, and reductions in expenses during the period.
“It shows that these companies could sufficiently meet their current obligations in the period, looking at the claims paid during the period,” Banmeke added.
Aggregate cash and cash equivalents, the value of a company’s assets that are cash or can be converted into cash, grew by 56.54 percent to N84.33 billion in the first six months of 2022, from N53.87 billion in the corresponding period of 2021, indicating that their capacity to pay claims also grew in the first half this year.
Cash liquidity is crucial to the financial health of insurance companies as it is required for paying claims and current obligations. The cash flow from operating activities depicts the cash-generating abilities of a company’s core business activities.
For insurance firms, it measures the funds generated from insurance operations which include the change in cash and invested assets attributed to underwriting activities, net investment income, and federal income taxes. If the net cash flows from operating activities for insurance companies are increasing, it connotes that these firms are efficient in generating cash from their day-to-day operations, and are able to cover their expenses or claims during the period.
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Firm-by-firm analysis
NEM Insurance
The largest insurance company by market capitalisation, NEM Insurance saw its net cash flow from operations decline by 90.6 percent in the first half of 2022 to N279 million from N2.97 billion in the first half of 2021.
This was primarily due to the cash outflows from reinsurance premiums and direct claims paid during the period amounting to N6.03 billion and N6.15 billion respectively.
However, the insurance company’s cash and cash equivalent appears sufficient, as it grew by 2.30 percent from N7.84 billion in the first half of 2021 to N8.02 billion in the first half of 2021.
AIICO Insurance
Second largest by market capitalisation, AIICO insurance managed to grow its net cash flow from operating activities during the period, up from a negative cash flow from operations reported in the first half of 2021 (N20.42 billion) to N1.13 billion in the first half of 2022.
Some of the cash inflows reported by the insurance firm during the period include the total premiums received of N45 billion, unallocated premiums of N2 billion, and proceeds from the disposal of AIICO Pension of N4 billion.
Some of the cash outflows include the gross benefits and claims paid amounting to N22.77 billion, reinsurance premium paid amounting to N10.7 billion, and commission paid amounting to N4.55 billion in the first half of 2022.
The insurance company also reported a 117 percent growth in cash and cash equivalents, which amounted to N38.36 billion in the first half of 2022, up from N17.66 billion in the first half of 2021.
AXA Mansard Insurance
This is the third-largest insurance company by market capitalization. It grew its net cash flow from operating activities by 27 percent to N5.19 billion in the first half of 2022 from N4.08 billion in the first half of 2021.
AXA Mansard reported cash from operations after changes in working capital amounting to N6.38 billion in the first half of 2022, largely driven by the immense amount of cash inflow which exceeded its outflow.
The total cash inflow generated from operating activities amounted to N40.9 billion, largely driven by the cash received from reinsurers on recoveries for claims paid and the cash premium received amounting to N35.46 billion.
Its total cash outflow from operations on the other hand amounted to N35.31 billion, primarily driven by the cash paid as reinsurance premium which amounted to N11 billion in the first half of 2022.
Cash and cash equivalents amounted to N17.52 billion in the first half of 2022, representing 89.9 percent increase from N9.23 billion reported in the first half of 2021.
Cornerstone Insurance
Cornerstone Insurance reported a negative net cash flow generated from the operating activities of N729 million in the first half of 2022, down from positive net cash from operations of N2.03 billion reported in the corresponding period of 2021, suggesting that the insurance company did not generate enough cash from its operations in the first half of 2022.
Reinsurance premium paid amounting to N4.39 billion, other operating cash flows of N3.04 billion, insurance benefits and claims paid of N2.77 billion, and a commission of N1.32 billion paid formed the bulk of the cash outflow from operations by the insurance firm.
While the cash inflow generated from its operations during the period under review included an insurance premium received of N9.68 billion, a reinsurance commission received of N1.41 billion, and reinsurance claims received of N713 million.
Its total cash and liquid assets during the period under review amounted to N11.65 billion, 11.27 percent down from N13.13 billion in the first half of 2021.
Coronation Insurance
The net cash generated from operating activities by Coronation Insurance improved from negative net cash of N112 million reported in the first half of 2021 to N1.07 billion in the first half of 2022.
In the first half of 2022, its total cash generated from operating activities amounted to N14.36 billion, while its total cash used in operating activities amounted to N13.26 billion.
The insurance company also grew its total cash and liquid assets by 46 percent to N8.78 billion in the first half of 2022, from N6.01 billion in the corresponding period of 2021.
