LASACO Assurance Financial Strength Upgraded after Capital Injection
GCR Ratings has upgraded Lasaco Assurance Plc.’s national scale financial strength rating to A (NG) from A-(NG), with a stable outlook, which reflects the insurer improved capitalisation and liquidity positions.
Reflecting a stable outlook that is accorded to the company, GCR hopes that Lasaco will defend its market position despite increasing competitive dynamics.
“We believe that any further strengthening in the capital should be accompanied by solid capital management structures for the factor’s assessment to be maintained at higher than current levels”, the rating firm added.
GCR explained that the insurer’s liquidity is expected to be under pressure from an increase in net technical reserves and working capital requirements as the insurer implements its growth strategy.
“We also note that the insurer’s planned capital injection will largely reduce downside risks to the rating over the outlook horizon”. According to the rating note, these strengths are offset by the insurer’s subdued earnings profile and limited competitive position in the highly fragmented Nigerian insurance industry.
Lasaco evidenced strong risk-adjusted capitalisation over the review period, supported by the sizeable capital base relative to aggregate risk exposures, underpinned by the additional capital injection of N3.5 billion through private placement, according to the rating note.
The injection boosted the insurer’s capital level by 44.9% to N11.3 billion in the financial year 2021, resulting in a higher capital adequacy ratio.
GCR capital adequacy ratio improved to 3.0x in 2021 from 2.2x, evidencing good loss-absorbing capacity, while statutory solvency perspective, the insurer’s solvency margin closed higher at 1.6x from 1.1x against the regulatory minimum of 1x.
Similarly, the insurer’s liquidity position improved in 2021 following the aforesaid capital injection, GCR Ratings said. As such, liquidity coverage registered at a higher 1.8x in 2021, up from 1.5x in the preceding year.
“Further improvement in the liquidity metric is envisaged over the rating horizon should the planned additional capital inflow materialises. Also supporting the liquidity assessment is a good asset and liability matching in the life business, given that the maturity profile of investment assets closely matched obligations on funding liabilities”.
GCR negatively view Lasaco’s asset allocation, with a sizeable 20.1% of the investment portfolio held in investment properties in 2021, up from 18.3% in 2020, which has historically generated minimal rental yields of below 1%. The insurer’s earnings were noted to be volatile over the review period, largely due to movements in fair value and claims.
Specifically, the spike in gross claims incurred in 2021 was driven mainly by claims settlement with respect to asset vandalisation which followed the 2020 End-SARS protest, given the Insurer’s high exposure to the affected accounts.
Nonetheless, the claims and benefits ratio moderated to 39.4% in 2021, from 40.1%; compared with its four-year average of 34.9%. Its decline in claims and benefits ratio was underpinned by an increase in reinsurance recoveries and total income, according to the rating note.
Lasaco’s net profit after tax declined by 61.6% in 2021, translating to a lower return on revenue of 2.9% versus 9.7% reported in 2022 and its four-year average of 7.9%.
GCR estimate indicates an improvement in earnings on the back of the insurer’s outlined premium growth strategy, particularly through intensified retail segment penetration and stronger investment income flows.
By business profile, Lasaco’s position as a mid-tier composite player within the Nigerian Insurance industry, controlling an estimated market share of 2.3% as of 31 December 2021, GCR said.
It noted that the insurer evidenced an upward trajectory in gross written premiums over the review period, registering an average annual growth rate of 13.6%. READ: GCR Upgrades NEM Insurance on Sustained Earnings Strength
“This growth trajectory was largely supported by the insurer’s subsisting affiliation with the Lagos State government, well-entrenched relationships with brokers, and improved service delivery”, GCR added.
It said Lasaco’s business mix is viewed to be somewhat diversified, with four lines of business contributing over 10% to the non-life business’ gross premium base in the period.
However, this is altered by concentration in the life business, which is largely skewed towards the group life business at approximately 99%, adding that policyholder diversification is likely to improve over the next 12-18 months, with the onboarding of more retail policyholders. # LASACO Assurance Financial Strength Upgraded after Capital Injection
