Ibile, Cannon Keep Largest Stake in Lagos-Backed LASACO Assurance as Profit Breaks
Ibile Holdings and Cannon Property & Investment Limited maintain a 40.3% equity stake in LASACO Assurance Plc, according to detail from the company’s results. The Assurance company’s latest result shows that earnings per share expanded to 16 kobo in the first half of 2021 from 9 kobo a year ago.
This happened despite a strong decline in the company’s profit after tax. In the first six months earnings scorecard into the year, LASACO bottom line was hit by costs tsunami as profit for the period plunged to N294.167 million from N632.014 million in the comparable period in 2020.
Bottom line tumbles despite increased gross premium written from N6.946 billion to N9.676 billion in the first half of 2021. The strong performance at the topline was peppered by increased underwriting expenses that jerked up from N1.476 billion to N1.892 billion, driven by an increased claim.
Overall, increased changes in unearned premium from N2.249 billion in the first half of 2020 to N3.634 billion dragged the insurer’s keep insurance premium earned at N6.041 billion in the first half of 2021. The amount was reduced by re-insurance expenses paid by LASACO as net underwriting income settled at N4.456 billion, from N3.191 billion in the comparable period.
Offsetting this, net claim paid policyholders by LASACO jumped in folds, from N651.981 million to N1.6 billion. This led to a drop in underwriting income in the period, from N1.063 billion to N964 million amidst growing operating expenses.
Total influential shareholdings in the company steadied at 47.39% with free float value declined to N6.51 billion from about N38 billion. Its issued share capital was reduced from N3.667 billion last year to N916.79 million, with the difference transfer to the share reconstruction reserve.
Lagos State-backed Insurer LASACO grows shareholders’ funds in the first half to N11.252 billion from N7.8 billion in the comparable period in 2020.
The mid-tier insurers see earnings jump in the first half of 2021 amidst the industry recapitalisation program currently put on hold. Following the share reconstruction, Ibile Holdings, representing Lagos State, own 27.65% of the insurers’ net asset while Cannon owns 12.7%.
LASACO has reduced its share issued from 2.959 billion shares to about 740 million to pave way for new issuance and repackage the company’s capital. Share deposits printed at N3.5 billion in the first half of 2021, from N400 million. Due to pressure in the economy, the insurer sees an earnings slowdown in the first half of 2021.
In August, GCR rated the company with a stable outlook, noted that the rating reflects the insurer’s moderately strong financial position, which partly offsets its limited competitive position in the highly fragmented Nigeria insurance industry.
The ratings said Lasaco is a mid-tier composite player within the Nigerian Insurance industry, with a track record of over four decades. The insurer controls an estimated market share and relative market share of 2.2% and 1.2x respectively as of the financial year 2020 based on total gross written premiums of the industry.
It noted that the premium base is somewhat concentrated, with group life business dominating premium mix over the review period with 60% contribution in 2020.
“This is somewhat offset by a diversified portfolio in the short-term business, with four lines of business contributing over 10% to the gross premium base”.
Going forward, GCR said in the rating report that the insurer’s competitive position is expected to be maintained within the same range, supported by entrenched market relationships with intermediaries and policyholders.
Earnings are at an intermediate level, with net profit supported by market sensitive income, according to GCR review. In this regard, profitability in 2020 is underpinned by investment income and the highly volatile foreign exchange gains.
Due to the low yield environment and the pandemic, investment income declined notably by 24.2% year on year in 2020. This, coupled with an increase in net claims during the year, resulted in moderation in operating margin.
“Looking ahead, given the strategic plans put in place, we expect planned premium growth to improve portfolio quality and support the volatile investment income, which in turn should result in earnings stability”, GCR noted.
However, the ratings identified that Lasaco’s capital adequacy is a positive rating factor. Though a slight 2.2% year on year decline in capital was reported due to revaluation losses, capitalisation metrics remained strong.
GCR said both the international solvency and the ratings capital adequacy ratio were maintained well above 100% and 2.5x respectively over the review period, evidencing good loss-absorbing capacity.
“The insurer plans to increase its shareholders’ funds by about N10 billion over the medium term to enable participation on big policies, support business growth, and better position the insurer.
“This could be supportive to the rating should it be successfully implemented, with evidence of good capital management structures”, the ratings added.
GCR said the stable outlook reflects an expectation that LASACO will defend its competitive position as it deepens its relationship with the Lagos State, being the major shareholder. The ratings firm expects the planned capital raise to improve the liquidity position over the next 12-18 months, while investment properties generate healthy returns for the insurer.
“We expect planned premium growth to improve portfolio quality, and support the volatile investment income, which in turn should result in earnings stability”, it noted.
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Ibile, Cannon Keep Largest Stake in Lagos-Backed LASACO Assurance as Profit Breaks
