Cornerstone Nigeria Plc, the technology driven insurance company said profit rose 72.21 percent as gain on bargain purchase added a significant boost to bottom lines in a challenging environment.
This means the management and board of directors of the underwriting firm have achieved its strategic goal of using a well diversified portfolio in bolstering growth at both the top and bottom lines.
For the year ended December 2015, Cornerstone recorded a profit after tax of N1.63 billion as against N946.48 million the same period of the corresponding year of (FY) 2014.
Analysis of the financial statement of Cornerstone shows the tremendous growth in profit was due to N1.83 billion contributions from gain on bargain purchase.
A bargain purchase consists of financial assets acquired for less than fair market value. In a bargain purchase business combination, a corporate entity is acquired by another for an amount that is less than the fair market value of its net assets.
Current accounting rules for business combinations require the acquirer to record the difference between fair value of the acquired net assets and the purchase price as a gain in its income statement, thereby providing an immediate boost to the acquirer’s equity.
While other insurance companies are struggling with economic downturn caused by a drop in oil price, Cornerstone Stone recorded a 49.70 percent increase in net premiums income to N5 billion in 2015 from N3.34 billion as at December 2014. Gross premiums income jumped by 37.22 percent to N7.11 billion while gross premiums written moved by 40.66 percent to N7.33 billion in the period under review.
The Nigerian insurer has an efficient underwriting capacity as underwriting profit increased by 10.21 percent to N2.05 billion in 2015 from N1.86 billion.
The shareholders of the Cornerstone approved the acquisition of Fin insurance in order to bolster its growth and expansion strategy.
Analysts say a scheme of mergers and acquisitions in the insurance industry is a catalyst for growth in a sector that contributed less than one percent to an economy of $510 billion.
Further analysis of the financial statement of Cornerstone shows the company has strong financial strength as combined ratios (CR) was 73.10 percent in 2015, higher than 58.05 percent recorded last year and lower than the 100 percent threshold.
Cornerstone’s rising CR was due to increased claims payments for 2015. Total claims increased by 78.08 percent to N2.19 billion in 2015 from N1.23 billion as at December.
BALA AUGIE
