Lasaco Assurance: Worst Performance In 4th Quarter
Lasaco Assurance Plc lost the growth momentum with which it closed half year operations and the accelerated growth in revenue and profit that shareholders had hoped for in the 2019 financial year failed to be realised. A slowdown in the third quarter extended to a profit drop of 54 percent within the final quarter – the worst quarterly performance record in the year.
The company’s full-year report yet to be audited shows that of the closing after-tax profit figure of roughly N742 million for the year, less than N90 million was generated within the final quarter – a further drop from N112 million in the third quarter. The pressure came from underwriting expenses, which multiplied nearly seven and half times on a quarter-on-quarter basis to over N835 million in the last three months to December 2019.
Underwriting costs incurred within the quarter accounted for about one-third of the full-year underwriting expenses of N2.5 billion. This was big enough to consume all the revenue gain from an increase of about 26 percent in net underwriting income as well as cost-saving from a drop of 34 percent in claims expenses during the quarter. The company, therefore, recorded drops all the way from underwriting profit to net profit in the final quarter compared to the same quarter in 2018.
The slacken performance in the final quarter left the company’s full-year profit only a little improved from N736 million at the end of 2018 to less than N742 million at the end of 2019.
This is a flat growth and a worse performance than the improvement of 11 percent in after-tax profit in the preceding year.
It is hopes dashed for shareholders who had anticipated an elevated performance to rebuild profit after a 30 percent drop in 2017. Half-year performance has raised expectations that an accelerated growth was in the making and that a new profit peak was to be expected.
The company’s full-year position shows a reasonable improvement in the underwriting business with net underwriting income growing by 29 percent to N6.7 billion. The good news extended to claims expenses, which declined during the period. The bad news is that underwriting expenses soared by 87 percent to N2.5 billion to consume both the revenue gains and the cost saved from claims expenses during the period.
Investment income was only moderately improved but other income dropped by more than 41 percent at the end of the year. Operating expenses grew by 19 percent to N2.6 billion and consumed an increased proportion of net income.
Lasaco Assurance closed the 2019 financial year with a net underwriting income of N6.74 billion, representing strong year-on-year growth of 29 percent. Strong growth in fees and commissions contributed significantly to enhance underwriting income.
A major slowdown in total underwriting expenses in the third quarter was reversed in the final quarter. Both net claims and underwriting expenses had moderated in the third quarter and lowered the growth in total underwriting costs from more than 38 percent at the end of June to about 31 percent at the end of September.
An upsurge in underwriting expenses in the final quarter pushed up total underwriting costs by 35 percent to N4.26 billion at the end of the year. Claims expenses are the moderating factor, which declined at about 4 percent to N1.73 billion at the end of the year.
Total underwriting cost, therefore, grew ahead of net underwriting income at 35 percent compared to 29 percent. That lowered the growth in underwriting profit from 30 percent at the end of the third quarter to 20 percent to N2.48 billion at full year.
That represents a sharp slowdown from the preceding year’s performance when underwriting profit advanced by 65 percent to over N2 billion. Then underwriting income had grown at twice the growth rate in total underwriting expenses.
Investment income gained some strength in the final quarter and shifted from a decline of 4 percent at the end of September to moderate improvement of 3 percent to N781 million at the end of December 2019. This is still a better record than the drops of 57 percent in 2017 and 14 percent at the end of 2018.
Lasaco Assurance, however, continues to underperform the investment income of as much as N3.4 billion in 2016 – which then accounted for more than 93 percent of the company’s net income. The ratio fell to 53 percent in 2017, 26 percent in 2018 and further to 19 percent at the end of 2019.
The strength for the slight improvement in investment income came from management’s effort to shift its investment assets to fixed income securities. Fixed income securities amounted to almost 83 percent of total financial assets at the end of 2019, rising from 77 percent at the end of 2018.
The company posted an after-tax profit of N742 million at the end of December 2019. This is a flat growth on the N736 million after-tax profit the company posted in 2018. This means the disappearance of a 20.5 percent increase in profit year-on-year at the end of the third quarter. This is explained by a drop of 54 percent in the final quarter profit figure compared to the corresponding quarter in 2018. The final quarter profit figure of N89.8 million contributed only 12 percent to the full-year profit figure.
With the final quarter disappointment, Lasaco Assurance lost the strength for a full rebound in profit performance in 2019. The company’s after-tax profit had dropped in 2017 from the height of N944 million in 2016. Recovery failed to be sustained for the second year in 2019.
Lasaco is a composite insurance company and needs to inject a lot of new money into its operations in compliance with the increased capitalization requirements for both arms of its underwriting business. Preparatory to this, the company resolved last year to reconstruct its outstanding shares of about 7,334 million into over 1,833 million shares by issuing one new share for every four.
A special/private placement of 9,250 million ordinary shares at N1.20k per share is planned for this year. The company is targeting to raise N11.1 billion additional capital through special/private placement.
The risk underwriting firm closed the 2019 financial year with a paid-up capital of N3.67 billion and needs an additional N14.4 billion to meet the minimum capital requirement of N18 billion for composite insurance companies. The company has a robust reserve that will swell up further with N2.75 billion of the surplus nominal value of reconstructed shares being transferred into the share reserve account.
Earnings per share ended flat at 10 kobos at the end of 2019. The company paid a cash dividend of 5 kobos per share for the 2018 operations. No dividend information for 2019 operations has been given so far.
Comments are closed.