A precipitous drop in foreign exchange gains has undermined Lasaco Insurance Nigeria Plc’s full year profit despite improved underwriting performance.
Net profit for December 2017 was N661.87 million, which represents a 30 percent decrease from N944.46 million recorded in December 2016.
The decline in profit was due to a 79.34 percent drop in foreign exchange gains to N540.78 million in the period under review as against N2.61 billion the previous year.
Lasaco Insurance said in its financial statement that foreign exchange gain was as a result of the revaluation of the currency in 2017.
The Company revalue her deposits and domiciliary account balances hence the exchange gain of N608m (2016:N2.6b), according to the company
While the insurer suffered a drop in profit in the period under review, its underwriting performance has continued to improve amid a tough and unpredictable macroeconomic environment.
Underwriting profit surged by 431.97 percent to N1.25 billion in the period under review from N235.15 million the previous year; driven by a 29.98 percent drop in reinsurance expenses to N2.98 billion in the period under review.
Lasaco is profitable and efficient as its combined ratios (CR) fell to 77.68 percent in December 2017 from 96 percent as at December 2016 amid rising claims expenses.
The combined ratio is calculated by taking the sum of incurred losses and expenses and then divides by earned premium.
A ratio below 100 percent indicates that the company is making underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.
The Nigerian insurer claims expenses surged by 214.73 percent to N1.96 billion in the period under review from N622.77 million as at December 2016.
Claims ratios increased to 53.40 percent in the period under review as against 44.48 percent the previous year.
This means the firm is spending more claims to generate each unit of premium.
Analysts attribute rising claims expenses to perils such as fire and flood incidences. They added that the growing awareness about insurance policy is making policy holders’ demand for claims.
Despite rising claims ratio, insurers are looking at increasing premium especially on special risks while deploying more energy towards growing premium income.
Lasaco insurance’s share price has been stuck at N0.50 since 2014 but moved to N0.52 in June 2016 while it dropped to its origin at N0.50 as at 26 January 2018.
The Nigerian insurer’s share price is trading below N0.50 since the NSE removed the N0.50 floor price, a rule that protected stocks from falling below N0.50.
This means the rule has triggered a sell off as investors now have the leeway to dump zombie stocks in search of firms that could add value to their investments.
Insurance companies in Africa’s largest economy have been grappling with weak valuation as the N2.65 stock price of the largest insurer by market value–AXA Mansard– is lower than the N3.20 market price of Tier 2 lender, Fidelity Bank.
In short, the N113.15 billion total market capitalisation of the NSE 15 insurance stock are lower than N462.45 billion market cap of tier 2 lender Stanbic IBTC Holdings.
Experts are of the view that the present 57 non-life and reinsurance companies in the country are too large for optimal performance and that a scheme of mergers and acquisition will enable them take on more risk and compete on a global arena.
BALA AUGIE
