Lasaco Assurance Plc posted a 25.11 percent drop in half year profit, as it set aside money to cover claims related to Covid-19 outbreak and losses incurred due to damages to properties during the ENDSARS protest.
Lasaco, one of the largest insurers in Africa’s largest economy, posted negative real underwriting results of N442.12 million as against N646.40 million as at March 2020, according to MoneyCentral calculations.
The real underwriting results are derived by deducting 1 from the combined ratio and multiplying the results by net premium income. It is a better measure of efficiency than the underwriting profit that excludes management expenses.
MoneyCentral calculations showed that the combined ratio — a measure of claims and costs as a proportion of premium income — fell to 113.01 percent in March from 119.10 percent the previous year. Anything over 100 per cent suggests that an entity is lossmaking.
The deteriorating underwriting capacity was elicited by mounting claims expenses, as there were losses incurred due to mounting obligations that relates to Covid-19 crisis and the ENDSAR protest.
Also, inflationary pressures and constant devaluation of the currency balloons replacement costs of assets.
The Nigeria Insurers’ Association (NIA) reported a total of 1,661 protest-induced claims as a result of the #EndSars protests, of which 143 substantiated claims worth N105.0m have been settled.
“We believe the settlement of claims is key to emphasizing the purpose of insurance among the Nigerian populace and encouraging uptake of insurance policies although this would imply higher costs and depressed profitability for insurers,” said analysts at Afrinvest Securities.
The regulator is taking drastic actions on firms that have negated the principle of insurance.
Lasaco Insurance’s total claims expenses surged by 3,489 percent to N1.89 billion in the period as against N52.83 million the previous year.
Its claims ratio, otherwise known as loss ratio, moved to 55.60 percent in March 2021 from 3.34 percent the previous year.
The worries are that rising claims expenses are hindering top line (sales) impressive performance from translating into bottom line (profit) growth needed to deliver a higher return in form of dividend to shareholders.
The insurer’s diversified product portfolio is gaining traction among customers, and they have contributed to strong premium growth.
Gross premium income spiked by 67.43 percent to N6.69 billion in March 2021 from N4 billion as at March 2020. Gross premium income rose by 40.50 percent to N4.56 billion in the period under review from N3.25 billion as at March 2020.
Net premium income followed the same growth trajectory as it surged by 116.20 percent to N3.41 billion as at March 2021.
The insurer’s net income fell to N181.38 million from N266.37 million, and there was a sharp decline in investment income, largely driven by a low yield environment as the central bank has adopted a dovish tone to curb inflation and protect the external reserve.