Linkage Assurance’s Critical Link To Profit
Despite an underwriting loss of N438 million within the second quarter ended June 2019, Linkage Assurance was able to close half year operations with a profit of N573 million. Investment income provided the critical link to profit despite other income disappointments and rising management expenses.
Investment income provides a big boost to the company’s income statement amid disappointing underwriting results in recent years. Last year, earnings from investments provided the bridge from an underwriting loss of N772 million to a pre-tax tax profit of N135 million. Yet it could not prevent a sharp drop from the company’s peak profit into a net loss.
The company has built up a big investment portfolio of financial assets over the past four years that peaked in the region of N20 billion at half year 2019. The portfolio consists largely of unlisted equities and fixed income securities that have continued to be a major factor in the company’s earning story. Without the strength from investment income last year, a much bigger loss would have occurred.
Recovery is progressing this year and the company is no doubt depending on the investment portfolio to produce the profit. By investing in pension companies and fixed income assets, Linkage Assurance seems to have built a model investment portfolio that has shielded it from the troubled equities market.
The company closed half year operations in June 2019 with gross premium income of over N3 billion, a year-on-year increase of 20.5 percent. Reinsurance expenses rose by 61 percent to N1.2 billion and claimed much of the increase in gross premium income. Net premium earned improved only moderately at 3.5 percent year-on-year to N1.83 billion.
Fee and commission income added some strength on the side of earnings at a growth of 62 percent to N228 million – which stretched out the increase in net premium income to about 8 percent to over N2 billion. This is a decelerating record for the current year compared to a growth of over 22 percent in net premium income last year.
Claims expenses, which swelled last year and accounted largely for the loss in the year, are on a reverse movement so far this year. Net claims expenses dropped by 36 percent year-on-year to N705 million at the end of June 2019.
Underwriting cost is equally following the same pattern. Against an increase of 16 percent last year, underwriting expenses went down by 8.5 percent at the end of the review period.
The cost savings from the two favourable cost behaviours provided sufficient room to absorb the underwriting loss of close to N438 million in the second quarter and still permitted an underwriting profit of N279 million at the end of half year operations. That was nevertheless a major step forward from an underwriting loss of N367 million in the same period last year.
The company ended last financial year with an underwriting loss of N772 million. The prospects for underwriting profit this year are uncertain. The shift from profit in the first quarter to a loss in the second, points to a possibility of further losses in the underwriting business in the second half. However the sustaining of underwriting profit at half year raises flickers of hope for a better performance this year.
The big factor in the company’s performance at the end of half year operations is its investment income. Despite a year-on-year decline of 13 percent, the company realised investment income of close to N1.3 billion at the end of June 2019. This provided the strength for the company to put up profit performance at the end of the review period.
That was equally the company’s earning story last year when an investment income of close to N2 billion absorbed the underwriting loss as well as management expenses and still left a pre-tax profit of N135 million. Tax authorities collected a lot more than all the profit and left shareholders with a net loss of N290 million for the year.
A good part of the investment earnings so far this year were received in the second quarter, raising hopes for improved performance in the second half. Other income lines dropped significantly over the period while management expenses rose by 18 percent year-on-year to N827 million at the end of June 2019. The shift to underwriting profit and the relatively big investment income powered profitable operation for Linkage Assurance in the first half of the year.
The company closed the period with an after tax profit of N573 million, an increase of 16 percent year-on-year. While investment income is expected to continue to improve in the second half of the year, the ability to maintain underwriting profit to full year isn’t firm. It is expected however that the company would be able to defend its recovery position and possibly make a big leap out of the red at full year.
It closed half year operations with earnings per share of 7 kobo, slightly up from 6 kobo per share in the same period last year. It recorded a loss per share of over 3 kobo at the end of last year.
Linkage Assurance has called a meeting of shareholders to hold on 25th October 2019 preparatory to raising new equity capital in compliance with the new capitalization requirement for insurance companies. The company underwrites life and non-life businesses and needs to jerk up its paid-up capital from the present figure of about N4 billion to N18 billion.
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