Business

Linkage Assurance: Race to recapitalise spurs bottom-line

Current recapitalisation effort in the industry is having positive impact on financials of most insurance firms. CHRIS UGWU writes

 

Despite the recapitalisation of insurance firms in 2007, the sector has continued to struggle with challenges such as dearth of appropriate human capital and professional skills, poor returns on investment, existence of too many fringe players and poor asset quality.

 

Other challenges include prominence of unethical practices, significant corporate governance issues, premium flight, poor business infrastructural facilities, especially in the area of ICT and lack of innovation in product development.

 

Also included is lack of awareness on the part of consumers on the uses/suitability of insurance products, low gross domestic product (GDP), per capita figures and poor corporate governance structures.

 

Penetration remains a huge challenge, with some having to do with the culture and the general mind-set of people to insurance.

 

This negative perception that trailed the sub-sector has retarded the growth of insurance leading to the inability of majority of companies in the industry to pay dividend to shareholders for many years. Market watchers attributed the inability of the sub-sector to rise above the nominal level to crisis of confidence.

Besides, the few ones that raised high expectation for good results ended up reporting negative financial results.

 

However, while most insurance stocks appeared undervalued for much of last few years due to the harsh business environment, following recent regulatory policies, the insurance sector is currently one of the best performing in the country.

 

According to market analysts, the driver is likely the recent recapitalisation efforts that have dominated the sector since 2019. Insurance regulator, NAICOM, had given insurance firms until December 2021 to recapitalise or risk their licenses being revoked before a court order stalled the process.

 

The recapitalisation rules require life insurance firms to meet a minimum paid-up capital of N8 billion, up from N2 billion previously. Also, general insurance companies are required to raise their minimum paid-up capital to N10.0 billion from N3 billion previously.

 

The regulatory capital for composite insurance was raised to N18 billion from N5 billion, while reinsurance businesses are now required to have a minimum capital of N20 billion from N10 billion.

 

Linkage Assurance Plc is one of such companies that have got its fair share from the recent fortune in the sub-sector.

 

Financials

For the fourth quarter ended December 31, 2019, the underwriting firm’s unaudited fourth quarter report submitted to the    Nigerian Stock Exchange (NSE) showed a Gross Written Premium (GWP) of N6.52 billion as against N5.59 billion during the same period in 2018, indicating a 21 per cent increase.

 

From the business generated in 2019 review period, the company also recorded a profit before tax growth of 902 per cent, moving from N134.7 million in 2018 to N1.35 billion during the review period. Profit after tax also grew to N930.24 million, a 421 per cent increase from a loss position of N290.12 million during the same period in 2018.

 

The performance, according to the company, came from improved underwriting as well as from investment returns, which saw the company coming out stronger during the review period.

 

Underwriting profit rose by 149 per cent to close at N375.622 million during the review period, as against loss position of N772.48 million the previous year, while investment also grew by 10 per cent, moving from N2.46 billion in 2018 to N2.71 billion in 2019.

 

The company’s total assets also appreciated by seven per cent to close at N24.72 billion, as against N23.15 billion in 2018. Linkage Assurance began the year 2020 on the downside with a loss after tax of N338.49 million as against a profit of N439.26 million posted in 2019.

 

Loss before tax stood at N340.193 million from a profit of N627.521 million 2019. However gross premium written grew by 28 per cent from N2.215 billion in 2019 to N2.846 billion in 2020. For Q2’20, the insurance firm recorded a marginal decline of four per cent from N572.77 million in 2019 to N550.44 million in 2020.

 

Profit before tax grew by 12 per cent to N915.098 million from N818.240 million in 2019. Gross premium written stood at N5.258 billion in 2020 from N4.130 billion in 2019 representing a growth of 27 per cent.

 

The insurance firm’s gross premium for Q3’20 grew by 28.6 per cent to N6.9 billion from N5.4 billion in the previous quarter of 2019. Profit before tax grew by 76 per cent to N1.5 billion in 2020 from N867 million in 2019.

 

Profit after tax grew by 90 per cent to N1.1 billion from N592 million in 2019. Net assets grew by five per   cent from N23 billion to N24 billion in 2019. Linkage Assurance Plc has reported a 34 per cent increase in profit after tax for the Q4 ended December 31, 2020.

 

The insurance firm, in a filing with NSE, posted a profit after tax of N1.942 billion in 2020 as against N1.452 million in 2019, representing a growth of 34 per cent. Profit before tax stood at N2.547 billion during the period under review from N1.339 billion in 2019, representing a growth of 90 per cent. Gross premium was N8.332 billion in contrast to N6.519 billion posted in 2019.

 

Profit drivers

 

The company attributed its continuous growth and market expansion to good relationships with the insurance brokers. The company said its focus going into 2021 and beyond will be to strengthen the relationship by continuously providing efficient services and meeting claims obligations promptly.

 

Managing Director/Chief Executive Officer of the company, Mr. Daniel Braie, stated this at the general meeting of the Nigerian Council of Registered Insurance Brokers (NCRIB), Lagos Area Council (LAC), hosted by the company in Lagos.

 

Braie said: “Linkage Assurance Plc recognises the pivotal role of the broker’s community in the growth of insurance business.

 

“That is why we decided that apart from hosting the national body, we would go a step further to host the various Area Councils across the country. “So far, we have done this in Abuja, Kaduna, Port Harcourt and now Lagos. If not for the COVID-19 pandemic that broke out last year, we would have covered more states.”

 

According to Braie, Linkage Assurance is still very committed to achieving this objective because of the importance it places on brokers as her strategic partners, as it is committed to delivering on the promises of her vision and mission statements.

 

He also disclosed that Linkage, from its unaudited result for the year 2020, grew its Gross Premium Written by 28 percent to N8.3 billion from N6.5 billion in 2019.

 

“The company also achieved profit before tax of N2.5 billion  and paid out claims amounting to N2.4 billion during the same period.

 

“This would not have been possible without your support for which we are grateful. We had the largest aviation treaty in the market last year, and this year we are about the highest in fire treaty. So, we are ready to serve you well,” Braie assured.

 

In the statement to NSE, Braie said the company would continue to refine its strategy in line with the political, economic, sociological and technological changes within our operating environment.

 

Braie also said that “the company would continue to develop innovative products, alternative channels of distributions and strategic initiatives that will enable us achieve our corporate goals and objectives. “With a medium-to-long term perspective, the company believes that it will benefit from growth from these initiatives.

 

“We will consolidate on the ongoing initiatives to improve our operational efficiency so as to reduce the cost of doing business, improve business processes, eliminate wastages and achieve higher margins in our core business,” the company said.

 

Rating agency foresees stronger sector

 

A new report has revealed that the on-going recapitalisation of the Nigerian insurance industry will improve their capacity to underwrite risks, generate adequate returns on investments and make better contributions to the growth of the nation’s economy.

 

Agusto & Co. Limited, the pan- African credit rating agency and the foremost business information provider, stated this in its 2021 Insurance Industry Report, released at the weekend.

 

The recapitalisation of the insurance companies announced by the National Insurance Commission (NAICOM), is expected to be concluded by September.

 

According to Agusto & Co., the recapitalisation could be a watershed in the industry.

 

It stated: “In addition to the benefits accruing from a larger capital base from a risk underwriting perspective, improved investment management practices will be upheld by a larger investment portfolio driven by a need to generate adequate returns. The recapitalisation exercise has elicited mergers and acquisition transactions in the Industry.

 

“Agusto & Co. anticipates an uptick in these transactions as the deadline draws near. The shareholding structure of most insurers is expected to change in the near term as some investors leverage the exercise to either gain or increase exposure to the industry.

 

With the gradual rebound of the global economy, more foreign investors are expected in the industry, given that the naira devaluation has reduced the value of insurance companies (in USD terms), despite the undisputed opportunities in the Nigerian insurance industry,” the rating agency said.

 

Last line

 

Effective risk management, alongside a tailored product offering, are vital to bringing more Nigerians into the market and boost insurance sector

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