LASACO Assurance: Returns May Drop With Capital Raising
Lasaco Assurance’s shareholders will be concerned that new capital injection into the company
would crash the rates of return the company presently offers. The company closed last year
with return on equity of 8.7 percent and return on assets of 4.3 percent.
The composite insurer may need over N14 billion in new money to meet the new capital
benchmark of N18 billion for its class of business. This is more than the N10 billion capital
injection it planned to raise last year under the tier-based capital structure now discarded by
National Insurance Commission.
The company has considered a combination of rights issue, public offer, preference share issue
and special placements and settled for greater use of preference shares in order to moderate
the impact of a new issue on rates of return.
Lasaco Assurance is under pressure to accelerate profit recovery and growth this year to put up
earnings performance good enough to attract new investors. Some progress was made last year when the company began to rebuild profit from a 30 percent drop in 2017, crowning it with a cash dividend.
The company’s half year report at the end of June 2019 shows strength in recovery with a good
chance of advancing to a new profit peak at the end of the year. The company is seeing an
upbeat in underwriting income but rising underwriting expenses aren’t letting it keep all the
gains.
Underwriting profit is therefore slowing down from the preceding year but good enough at
current growth pace. Underwriting profit is exclusively driving an improvement in net income,
as investment income keeps declining. The company’s management is making up for the
imbalance in earnings by holding operating expenses under control.
Management is succeeding in keeping earnings growing and with a good balancing of costs and
incomes, Lasaco Assurance is back on the path of profit growth. The company announced a
cash dividend of 5 kobo per share at the end of 2018 operations. Profit outlook for this year is
good enough to improve the dividend pay-out at the end of the year.
The company closed half year operations with a net underwriting income of N3.62 billion,
which is a strong year-on-year growth of 35 percent. A big leap in fees and commissions
contributed significantly to enhance underwriting income during the period.
A major challenge is coming however from rising underwriting expenses, which rose by more
than 50 percent year-on-year at the end of June 2019. Claims expenses moderated the growth
of total underwriting expenses during the review period at an increase of 38 percent.
Despite that, total underwriting cost grew ahead of underwriting income at the end of half year
operations. Nevertheless the company still achieved a top record growth of close to 31 percent
in underwriting profit to N1.32 billion at the end of June 2019. The growth rate is expected to
be maintained to full year.
The underwriting result so far this year isn’t as robust as last year when underwriting income
grew twice as fast as total underwriting expenses. The effect of that was a 64 percent advance
in underwriting profit to over N2 billion at the end of the year.
For the third year on, investment income is looking down, after dropping by 14 percent to N754
million at the end of 2018 and by 57 percent in 2017. Investment income went down further by
5 percent year-on-year at the end of half year operations in 2019.
Lasaco Assurance had raked in as much as N3.4 billion from investment and other income in
2016, which provided over 93 percent of the company’s net income in that year. The ratio
dropped to 53 percent in 2017 and again by 26 percent in 2018. A further decline has happened
this year to 25 percent at the end of June 2019.
Management is shifting its investment assets to fixed income securities – which amounted to
over 81 percent of total financial assets at the end of half year, rising from 77 percent at the
end of 2018. Fixed income investments rose by N635 million within the first six months of the
year, against declines in other components.
The company raised after tax profit by 25 percent year-on-year to N479 million at the end of
half year operations in June 2019. The full year outlook indicates after tax profit in the region of
N950 million for Lasaco Assurance in 2019 – an anticipated growth of 29 percent. This will see
the company through to a full recovery from the profit drop it suffered in 2017 and move above
the profit mark of N944 million attained in 2016.
The company earned 6 kobo per share at the end of half year operations compared to less than
3 kobo per share in the same period last year. Earnings per share is expected to be in the region
of 13 kobo for Lasaco Assurance at the end of the year, improving from 10 kobo per share in
2018. The company paid a cash dividend of 5 kobo per share to shareholders on Thursday last
week for the 2018 operations.
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