SIC - What happened in Q3 2016?

SIC Insurance Company Limited announced 530.7%y/y surge in net earnings to GHS7.08 million for the nine months ending September 30, 2016 (9M-2016) as a result of good revenue growth and significant drop in claims incurred.

Gross premium grew by 20.7%y/y to GHS128.22 million. However, net earned premium fell by 7.6%y/y to GHS57.33 million due to 24.6%y/y rise in reinsurance ceded and significant jump in unearned premium. Consequently, the reinsurance retention ratio dropped to 44.7% in 9M-2016 from 58.4% in 9M-2015.

The most significant positive impact on the bottom-line came from 61.4%y/y drop in claims incurred to GHS16.10 million in 9M-2016 (vs. GHS41.77mn in 9M-2015). In view of that, the loss ratio dropped significantly to 28.1% from 67.4% in the year ago period.

Although SIC reported an underwritten loss of GHS3.39 million, earnings were lifted by 11.3%y/y growth in investment income and continued generation of other income (albeit lower than previously). PBT and PAT jumped by 547.3%y/y and 520.7%y/y to GHS10.11 million and GHS7.08 million respectively in 9M-2016.

SIC Q3 2016 - The raw numbers

Would investors respond to the jump in net earnings?

While the good quarterly earnings momentum exhibited by SIC would be very much welcomed by shareholders, it is unlikely to significantly boost investor confidence in the company for the rest of the year. Investors are likely to play the waiting game until FY2016 earnings figures are released to enable them to assess the company's ability to return to underwriting profitability as well as sustain the current earnings performance in 2017. The FY2016 earnings performance would also give an indication of the company's capacity to propose dividend in respect of the 2016 financial year.

Oil and gas underwriting opportunities has failed to lift the insurance sector

The initial foreign and local investor optimism in the insurance sector following the commencement of oil production in late 2010 has waned significantly in the last five years. Investors are yet to see the impact of underwriting opportunities in the oil and gas sector on the performance of insurance companies in Ghana. We attribute this to the fact that the local insurance sector is not adequately capitalized to exploit such opportunities as well as the complexities that were applied in the formation of a pool of insurance companies to underwrite the oil and gas sector over 5 years ago.