Analyzing a Profit Dip of Neco Insurance Amidst Strong Premium Growth and Record Reserve Building
15th August 2025, Kathmandu
Neco Insurance Company Limited has released its financial results for the fiscal year 2024/25, revealing a year of strategic maneuvers that prioritized long-term stability over short-term profit.
Neco Insurance’s Profit Dips
The company reported a net profit of NPR 550.8 million, a slight decline from the previous year’s NPR 595.0 million. However, a deeper look into the report shows a robust performance in core business metrics, with a notable increase in premium collections and a significant strengthening of its capital base, which together paint a picture of a resilient and prudently managed company.
The moderate dip in profit can be largely attributed to a rise in reinsurance expenses and other operational costs. However, this was a strategic trade-off that enabled the company to grow its core business and build substantial financial buffers, a move critical for any insurance provider operating in a dynamic market.
The Premium Paradox: Income Growth vs. Profit Decline
For an insurance company, a key indicator of market success is its ability to grow its premium income. Neco Insurance excelled in this area, with gross premiums rising by 14.28% to NPR 3.28 billion. More importantly, its net premium income—the amount of premium retained after ceding a portion to reinsurers—grew by 6.87% to NPR 1.71 billion. This growth demonstrates the company’s expanding customer base and its capacity to attract new business while retaining existing clients.
The paradox of growing premiums but declining profit is explained by a significant increase in reinsurance expenses, which rose from NPR 1.27 billion to NPR 1.56 billion. This increase reflects the company’s prudent strategy to mitigate its risk exposure. While higher reinsurance costs may impact the bottom line in the short term, they ensure the company is well-protected against large-scale claims events, guaranteeing its long-term solvency and financial health. This choice underscores a commitment to risk management over immediate profit maximization.
The Cornerstone of Stability: Record-Setting Reserve Building
Perhaps the most striking aspect of Neco Insurance’s report is the substantial growth in its reserve funds, a cornerstone of its long-term strategy. The company’s special reserve grew dramatically to NPR 2.30 billion, a significant increase from the previous year. This substantial reserve fund provides a massive financial buffer for unforeseen contingencies and regulatory requirements. Simultaneously, the catastrophe reserve also increased to NPR 165.8 million, strengthening the company’s ability to handle large claims related to natural disasters. These robust reserves, combined with a paid-up capital of NPR 2.51 billion, position Neco Insurance as a financially secure and stable institution.
This strategy of fortifying reserves, particularly the special reserve, indicates a clear focus on strengthening the company’s capital structure to meet regulatory requirements and market demands. It assures both policyholders and investors that Neco Insurance is prioritizing its long-term financial commitments.
Financial Health and Shareholder Value
While net profit saw a modest decline, the company’s financial health from a shareholder perspective remains strong. The earnings per share (EPS) for FY 2024/25 stood at NPR 21.90. Although slightly lower than the previous year, this figure, along with a price-to-earnings (P/E) ratio of 32.44, suggests that investors remain optimistic about the company’s future growth prospects. The P/E ratio indicates that the market is willing to pay over 32 times the company’s earnings per share, reflecting a strong belief in its long-term potential. The company’s net worth per share of NPR 245.55 further reinforces its robust asset backing and financial resilience.
Strategic Outlook and Conclusion
Neco Insurance’s performance in FY 2024/25 highlights a balanced and strategic approach to managing its business. The company successfully grew its core business and strengthened its financial stability by building robust reserves, even at the cost of a temporary dip in net profit. The increase in net premium income, coupled with a well-fortified capital and reserve base, positions the company for continued growth. Going forward, Neco Insurance’s focus will likely be on leveraging its strong financial foundation and growing customer base to enhance profitability while maintaining its prudent risk management practices.
For More: Neco Insurance’s Profit Dips
