Insurance Sector: Investment income, not core insurance operations, drives H1 2026 profits

In the first half of 2026, investment returns became a significant contributor to profit for Nigerian insurers, outperforming profits generated from core insurance activities. A review of the H1 2026 financials from 17 listed operating insurers revealed that their combined investment results amounted to N79.22 billion, compared to N66.22 billion in insurance service results, showcasing investment returns exceeding core insurance profits by roughly N13 billion, or nearly 20%.

This trend was widely observed, with 10 insurers reporting higher investment results than insurance service results.

Individual analysis of Custodian Investment, Consolidated Hallmark Holdings, and Royal Exchange highlighted that their group results included not only insurance operations but also other businesses and investment activities, making direct comparison with standalone insurers challenging. However, the lower insurance service results do not necessarily indicate weak insurance revenue, as several insurers reported strong insurance revenue in H1 2026.

The real issue lies in how efficiently insurers convert premium-related revenue into profit after accounting for claims, insurance expenses, and reinsurance costs. For instance, Mutual Benefits generated N42.25 billion in insurance revenue but only N4.64 billion in insurance service results, with a significant portion of revenue absorbed by insurance service expenses and reinsurance costs.

AIICO Insurance exemplified this pattern, generating N27.61 billion in investment income, which far surpassed its N8.13 billion insurance service result, leading to N15.05 billion profit before tax and N13.40 billion profit after tax in H1 2026. Smaller insurers, such as IEI, leaned heavily on investment earnings to maintain profitability despite challenges in their core insurance business, generating a H1 PAT of N159.98 million.

The investment-centric nature of industry earnings becomes more apparent when considering listed insurance holding companies separately. NEM Insurance reported an investment result of N12.01 billion, though its core insurance operation remained the larger earnings contributor. Its net assets of N94.570 billion accounted for approximately 49% of the insurer's total assets.

Strong investment income did not automatically translate into profits, as these results demonstrated that investment income could support earnings but would not indefinitely compensate for weak insurance operations and high operating costs. Nigeria's insurance recapitalization effort had strengthened the sector's capital base, raising about N720 billion with 48 insurance companies and two reinsurance firms meeting NAICOM's requirements.

With interest rates still favorable, insurers with substantial investment portfolios have benefited significantly from fixed-income securities and other investments, causing investment income to become a major driver of profit for some companies.

While it is not inherently problematic for insurers to earn strong investment returns, the sustainability of those earnings in the face of changing interest rates or market conditions is a concern. Investors should look beyond headline profit numbers and consider whether insurers can maintain consistent earnings from premiums, underwriting, and claims management alongside reasonable returns from their investment portfolios.

As the industry heads into H2 2026, the focus has shifted from which insurers have successfully recapitalized to which can effectively utilize that capital. The companies likely to generate the most shareholder value will be those capable of growing insurance revenue, improving underwriting profitability, and generating sustainable earnings while still benefiting from their investment portfolios.

The crucial question, therefore, is not merely how much profit an insurer is making but from where that profit is derived and whether it can be repeated.