Law Union And Rock Insurance: Upbeat In Q3, Uncertainty For Full Year
Law Union and Rock Insurance Plc experienced an upbeat in the third quarter that broke the cruising speed drop in profit at half year but left the finishing line for the year uncertain. The company continued to lose profit year-on-year but the drop slowed down from 72 percent at half year to 34 percent at the end of the third quarter.
Despite the drop, profit was already well ahead of the full year figure in 2018 at the end of September. Yet, the chance that the year-on-year profit drop will extend to full year is high.
The upbeat in the third quarter came from moderate gains in revenue and deceleration of net claims expenses, which slowed down the decline in underwriting profit. Net premium income rose by 23 percent in the third quarter compared to the corresponding quarter in the prior year. That improved the year-to date increase in net premium income from 12 percent at the end of June to 13 percent at the end of September 2019.
Net claims and underwriting expenses remained a challenge to the company’s management as they continued growing far ahead of net premium income. Net claims and underwriting expenses still grew more than twice as fast as net premium income at the end of the third quarter.
Underwriting profit went down by 19 percent year-on-year at the end of the period. It was however a sharp slowdown from a drop of 39 percent in underwriting profit at half year. Despite the slowdown, the company recorded drops all the way from underwriting profit to the bottom line. The margin of declines however reduced during the period compared to the record at half year.
The moderated growth in net claims expenses registered some cost-saving in total underwriting expenses – which claimed a reduced share of net underwriting income from 81 percent at half year to 75 percent at the end of the third quarter. The cost saving provided the strength that slowed down the rate of decline in underwriting profit.
Some strength also came from investment income, which improved on quarter-on-quarter basis and lowered the margin of decline year-on-year. The gains in revenue failed to match the more rapid growth in costs, leading to a profit drop of as high as 34 percent at the end of September.
The company closed the third quarter with an after-tax profit of N342 million, already ahead of the N263 million full year figure in 2018. With a volatile behaviour of claims expenses, the full-year profit expectation is uncertain. While the company closed the third quarter of 2018 with an after-tax profit of N522 million, it ended the year with a profit of N263 million. There was an upsurge in net claims expenses in the final quarter – which accounted for more than half of the full-year figure.
Law Union and Rock Insurance earned gross premium income of N3.65 billion at the end of the third quarter, an increase of close to 13 percent year-on-year. This is slightly ahead of an increase of 11.7 percent at half year. Net premium income grew by 13 percent, accelerating from 8 percent at the end of June and net underwriting income amounted to N2.6 billion at the end of September 2019.
Net claims and underwriting expenses continued to be hurdles on the path of profitable operations. Net benefits and claims slowed down from 40 percent growth at half year but maintained a strong increase of 31 year-on-year to over N1 billion at the end of the third quarter. Underwriting expenses added to the pressure from the side of costs with an accelerated growth of 27 percent to N884 million against an increase of 20 percent at the end of June.
The moderation of net claims expenses reduced the proportion of net underwriting income claimed by total underwriting expenses from over 81 percent at the end of half year to 75 percent at the end of September. Despite the cost saving, underwriting profit still dropped by 19 percent to N645 million. It was however a considerable slowdown from a drop of 39 percent at the end of June 2019.
The upbeat in the third quarter also propped up investment income, reducing the margin of decline from 11 percent at half year to 3.6 percent at the end of September 2019. It remains a down year for the company compared to an impressive growth of 23 percent in investment income at the end of 2018. Some strength also came from a slowdown in management expenses from a year-on-year increase of 8 percent at half year to 6.6 percent at the end of the third quarter.
Law Union and Rock Insurance closed the third quarter with costs still growing well ahead of earnings but the margin of cost increases declined. The development stretched out profit margin slightly yet not good enough to prevent a drop of 34 percent in after tax profit. After tax profit amounted to N342 million for Law Union and Rock Insurance at the end of September 2019.
The company stayed on the path of falling profit for the second year as at the end of the third quarter. Its profit of N263 million in 2018 was a drop of 71 percent from the preceding year’s figure. Rising net claims expenses accounted for the profit drop in 2018 and it was again the critical element in the profit drop at the end of the third quarter of 2019.
The company earned 8 kobo per share at the end of September, which is a drop from 12 kobo per share in the same period in 2018. It ended the 2018 trading with earnings per share of 6 kobo, as profit dropped below the third-quarter figure at the end of the year. It paid a cash dividend of 2 kobo per share to shareholders for the 2018 operations.
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