AXA Mansard Plc published its audited FY: 2015 result on March 17, 2016 on the floor of the Nigerian Stock Exchange (NSE).

According to Afrinvest Research Report, the Company recorded a decline in Gross Premium Written (GPW), however, Gross Premium Earned (GPE) and Profit after Tax stayed positive.

Afrinvest presents the highlights of the result and FY: 2016 estimates.

GPW declined 4.7% Y-o-Y but GPE Rose 12.7% Y-o-Y to N16.9bn
Mansard’s FY:2015 GPW declined 4.7% Y-o-Y to N16.6bn from N17.4bn in 2014 posting the first decline in the last 8 years when compared to 8-Year average growth of 29.8% (CAGR).

However, GPE expanded 12.7% Y-o-Y to N16.9bn in FY: 2015 (Surpassing our 8.8% Y-o-Y projection for the same period) as unearned premium decreased by N0.3bn. Accordingly, Net Premium Income increased 9.4% Y-o-Y to N9.9bn while reinsurance expense rose 17.7% Y-o-Y to N7.0bn.

Unsurprising, FY: 2015 PBT improved marginally, up 0.4% Y-o-Y to N2.0bn as a cocktail of hikes in Net Claims Incurred (+31.8% Y-o-Y to N5.1bn), Underwriting Expenses (+7.4% Y-o-Y to N1.8bn) and Management Expenses (+13.3% Y-o-Y to N5.1bn) pressured profitability.

PAT however rose 8.1% Y-o-Y to N1.6bn due to N80.9m loss booked on discontinued operation in 2014.

Combine Ratio Expands to 73.4% on Higher Claims Incurred
Against the bck drop of a higher net claims incurred, Mansard’s claims ratio rose to 54.7% in FY:2015 from 45.4% in prior year.
On the contrary, expense ratio eased 0.3% to 18.6% from 19.0% in 2014 signifying marginal improvement in cost of obtaining policies from insurance carriers. Consequently, combine ratio expanded to 73.4% from 64.4% in FY: 2014.

Insurance Contract Liability increased to N12.9bn
Underwriting ratios indicated that hike in claims ratio was traceable to a significant surge in claims paid on Group Life (+46.0%) and HMO (+464.7%) insurance policies, both of which accounted for 33.1% of total claims incurred.

Given the above, underwriting profit margin contracted to 17.7% from 22.6% in 2014 even as net margin moderated to 9.8% from 10.8%.Also worthy of note is reinsurance rate which increased to 41.4% in FY: 2015 from 39.6% in FY: 2014 reflecting the heightened risk in the macro-economy.

The statement of financial position indicated that total assets expanded 14.1% Y-o-Y from N44.9bn in FY: 2014 to N51.2bn in FY: 2015. This increase was on account of a 31.6% Y-o-Y surge in investment security to N24.0bn from N18.2bn in the prior year.
Similarly, driven by 14.4% Y-o-Y increase in insurance contract liability to N12.9bn in FY: 2015, Mansard’s total liabilities rose 10.6% Y-o-Y to N31.6bn.

Outlook and Valuation
We expect Mansard to leverage on AXA’s membership going forward following AXA’s recent acquisition of Assur Africa Holdings (“AAH”).

Nevertheless, challenges within macro economy may continue to pressure margins further in 2016. Consequent on the above, we anticipate further moderation in expense ratio although higher claims incurred will depress underwriting profit.

Thus, we maintain a modest outlook on PAT growth (7.4%) in 2016. We update our model on the basis of actual numbers however we retain our projections for the insurer.

Mansard declares a dividend per share of N0.05 implying a payout ratio of 31.6% (relative to 0.0% in 2014) on EPS of N0.16. PE and PBV ratios settled at 13.5x and 1.1x respectively.

We update our target price to N2.50/share from N2.43/share published earlier. Relative to market price of N2.14/share as at 18th March 2016, this portends a potential upside of 16.9%, thus, we retained our “ACCUMULATE” rating on Mansard.