Segun Olalandu

The Nairametrics article published on March 17, 2025, titled, “AIICO’s 2024 Profit Growth Masks a Claims-Driven Underwriting Crisis,” presents an inaccurate and misleading interpretation of AIICO Insurance Plc’s financial performance. The analysis misrepresents key financial metrics and, if left unaddressed, could misinform our stakeholders. We take this opportunity to clarify the facts, correct the misconceptions, and provide a proper perspective on our financial results and industry dynamics.

The Shift from IFRS 4 to IFRS 17 

Before 2024, insurers reported under IFRS 4, which allowed flexibility in financial reporting, making it difficult to compare companies fairly. The new IFRS 17 standard, adopted in 2024, brings transparency by requiring consistent recognition of insurance contract liabilities and deferred profits. This is especially relevant for life insurers, where profits must now be recognized over time rather than upfront. 

Understanding Key Financial Terms

Insurance service revenue – represents earnings from premiums over the coverage period, while insurance service expense includes claims, overheads, and acquisition costs. Reinsurance expenses are expenses paid to share risks with reinsurers. Net finance income or expense reflects the impact of interest rates on insurance liabilities. For long-term life insurance, the Contractual Service Margin (CSM) holds unearned profits as a liability until services are delivered. 

AIICO’s Strong 2024 Performance 

AIICO’s group revenue grew 48.8% to N108.3 billion in 2024, up from N72.8 billion in 2023. Premium income also rose significantly, by 44.7%, to N159.3 billion. While insurance service profit declined to N3.6 billion (from N5.5 billion in 2023) due to higher reinsurance costs and inflation-driven expenses, our total income still increased by 48% to N18.9 billion, supported by strong investment returns and effective foreign exchange (FX) management. 

Profit before tax grew 20.9% to N15.1 billion, and after adjusting for FX effects, underlying profit rose 5%. Return on equity remained robust at 23.3%, demonstrating continued value creation for shareholders.

Insurance companies collect premiums to provide different kinds of protection and investment solutions for customers. These premiums are invested to generate a return after which the promised payments are made according to the contract. For insurers across the world, insurance and investment operations are the two major drivers of revenue and earnings.

Why Reinsurance Matters

Reinsurance allows insurers to share risks beyond their capacity. The extent to which insurers reinsure their risks is largely driven by two factors: risk appetite and capacity and a company’s product mix usually determines its reinsurance expense relative to other companies. AIICO’s portfolio includes USD-denominated special risks (e.g., oil and gas), which are heavily reinsured internationally due to limited local capacity. While Naira devaluation increases reinsurance costs in local terms, this practice ensures policyholder protection and financial stability. In many cases, prudential guidelines guide how much risk an insurer can retain on its balance sheet, meaning that the excess must be reinsured.

Insurance service expenses

Insurance service expenses in our business do not just comprise claims and benefits payments but also acquisition expenses and overheads expenses attributable to each business. The make-up of these expenses differs according to the business model of the insurer. For insurers who specialiSe in short-term protection products like property, casualty or even group life insurance, claims expenses will likely dominate this category. Policyholders here buy insurance for protection and, depending on their circumstances, may or may not use this protection. We do not know the timing and amounts of these cashflows. However, for life insurers who may have longer-dated products like annuities, most of the expenses here are more appropriately classified as benefits. This is because at the inception of these contracts, these benefits have been guaranteed to the policyholder – we know these cashflows with a very high degree of certainty.

The Nairametrics article stated “..life insurance revenue stood at N51.911 billion, meaning the company paid out more in claims than it earned from this segment..”. . Insurance service revenue should be compared to insurance service expenses. Looking at this, we see that insurance service expense for the life business was about N49.4 billion implying positive service result. Claims expenses should be adjusted for liabilities reserved in the past to arrive at the expense for the year per accrual accounting principles.

Managing FX and Inflation Risks

Claims for asset protection policies (e.g., property, marine) increase in during periods of high inflation, reducing margins until insurers can reprice the policies. A key component of inflation in Nigeria is caused by FX volatility which also increases claims denominated in foreign currency when the local currency depreciates relative to the foreign currency. To mitigate this, AIICO strategically holds FX-denominated assets, which gain value when the Naira weakens, offsetting increased liabilities. In 2024, this approach generated ₦7.2 billion in FX gains for policy holders.  

Finance Expenses Under IFRS 17

The new accounting standard introduces net finance expenses, reflecting the time value of money on insurance liabilities. For example, long-term life insurance policies (spanning 1–100 years) now show implied interest costs, similar to how banks account for deposit liabilities. This does not indicate delayed payouts but aligns insurance reporting with other financial sectors. 

AIICO’s Contractual Service Margin (CSM), representing future profits from long-term policies, grew 41.9% to ₦28.2 billion in 2024. This growth confirms the strength of our life insurance business under IFRS 17. 

Conclusion: Prudent and Transparent Leadership

AIICO remains committed to sound risk management, sustainable profitability, and clear communication. We welcome dialogue with stakeholders to ensure accurate reporting and public understanding of our business. 

Segun Olalandu

Head, Marketing and Communication

AIICO Insurance Plc.