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Insurance stocks stagnate under harsh environment, low patronage


Nigeria Stock Exchange, Lagos

The nation’s insurance industry has not fared too well under prevailing harsh operating environment and low patronage even as the share prices on the trading floor of the Nigerian Stock Exchange (NSE), have stagnated at the nominal value year-to-date, following negative sentiments.

Additionally, the prevailing slowdown in economic activities, and consequent poor penetration of insurance products resulted in high claims ratio against low premium income, with some insurers unable to settle claims under such challenging position.

Due to the harsh economic realities, underwriters are still struggling to find their feet as a major of the financial services sector in Nigeria, as slow growth continues to be a key challenge they must overcome in order to encourage greater levels of investment.


The negative attitude of Nigerians to the sector might not be unconnected to the poor attitude of insurers as regards non-payment of claims. Some insurance companies are very notorious for defaulting in payment of claims, which has adversely affected the industry’s image and consequently eroded confidence by the insured.

For instance, as at December 2018, Cornerstone Insurance hit a five-year low of N0.20 per share. Year-to-date, the stock is down 60 per cent, while investors suffered slightly bigger losses at 64.9 per cent.

The decline in stock’s price over the last few years may be closely connected to its poor performance, as it has not paid dividend in over three years, and recorded losses after tax of N1.7 billion in 2016, and N3.3 billion in the 2017 financial year.

However, in its result for the nine months ended September 2018, Cornerstone made a profit after tax of N658 million, against a loss after tax of N2.1 billion recorded in the comparative period of 2017. The stock price as at Thursday, July 18, 2019 was 22 kobo.

Similarly, Prestige Assurance Plc suffered contraction in its profitability in 2018, despite considerable growth in its top-line.

Net profit dropped by 20.3 per cent to N423.8 million in 2018 against 37.7 per cent growth in gross premium to N4.66 billion.

Key extracts of the audited report and accounts for the year ended December 31, 2018, showed that Prestige Assurance’s gross premium increased from N3.39 billion in 2017 to N4.66 billion. Pre-tax however decreased from N697.99 million in 2017 to N645.43 million in 2018.

After taxes, net profit dropped from N531.84 million in 2017 to N423.8 million in 2018. With these, earnings per share declined from 9.90 kobo in 2017 to 7.89 kobo in 2018.

After the removal of par value price floor of 50 kobo by the NSE in January 2017, many insurance stocks still have their share price below 50 kobo.

As at July 18, 2019, the insurance firms that fall under this category are African Alliance 20 kobo, Consolidated Hallmark 31 kobo, Cornerstone Insurance 22 kobo, Guinea insurance 20 kobo, and International Energy Insurance 38 kobo.

Others include: Lasaco Assurance 34 kobo, Law Union and Rock 48 kobo, Mutual Benefit 20 kobo, Niger insurance 20 kobo, and Prestige Assurance 48 kobo.

The new pricing rule introduced in 2017 specified that market forces shall determine the price of every share listed on the Exchange, and equities may trade below minimum price floor of 50 kobo per unit.

As one of the key pillars of the financial services sector, the insurance industry is a central element for trade and development. A well-functioning insurance sector plays a crucial role in economic development not just at a macroeconomic level but also in individuals and businesses.

However, available data from various credit rating agencies pitch the sector as the most under-performing in the financial sector, compared to other insurance industries across the world.

At a combined market capitalisation of a little over N146 billion, insurance pales in comparison to the banking sector’s N2.4 trillion.

Rating agency, Agusto & Co, in a report said the penetration rate (measured as a percentage of gross domestic product, GDP) of the Nigerian insurance industry stood at 0.3 per cent in 2018; compared with South Africa’s 14.7 percent; Kenya 2.8 per cent; 1.1 per cent in Ghana; Angola 0.6 per cent; and Egypt 0.6 per cent.

Also, the density of the Nigerian insurance sector (i.e. a measure of the gross premium per capita) is currently at $6.2, and lags behind its African counterparts: South Africa ($762.5); Egypt ($22.8); Kenya ($40.5); and Angola ($30.5).

Agusto & Co’s also put Nigerian insurance industry’s asset base at N1.3 trillion as at December 31, 2018, indicating a compounded annual growth rate of 17 per cent over the last three years, with Gross Premium Income (GPI) at N448.6 billion, reflecting a 12 per cent growth year-on-year.

Although, some analysts expressed optimism that with this new minimum capital requirement, effective May 2020, a further consolidation of the insurance sector is imminent, as some insurers may seek to merge or be acquired by bigger firms, in a bid to comply with the directive.

According to them, Nigerian insurers need more capital to facilitate the acquisition of modern digital and technology-driven infrastructure necessary to aid their efforts at deepening insurance penetration, expressed an urgent need for operators to diversify their income stream in line with current economic realities.

speaking on the development, a stockbroker with Valmon Securities Limited, Tajudeen Olayinka, said the most contending issue in the sector is low patronage.

“Unless we get the economy back to a level where businesses can do well and insure their assets, insurance companies will continue to suffer low patronage, and that is what has been destroying their business and making them to lose capital.

“When the company is not giving good returns or good earnings, of course, it will affect the stocks. When it comes to equity, we trade earnings and earnings prospects, and once earnings are poor, the financials dims and that is what is happening to them; for now you will not see any performance in that sector.”

He continued: “Over the years, due to poor returns and performance, the sector has suffered stagnation in stock prices. It is peculiar to the sector because of the Nigerian system and the economy as a whole is not supportive of that sector in terms of patronage.

“Many of the stocks are trading at par, those that are more or less in the financial services outside insurance but have other businesses they are doing are performing better. The firms should diversify; you cannot lean on only insurance business to survive as a business.”


Another Stockbroker with APT Securities Limited, Muhammad Jamiu Kayode, urged underwriters to engage the services of professionals as well as diversify into new businesses to boost profitability.

“They should be able to come together to undertake big ticket projects to increase their bottom-line. They should also look at their investment activities because in the past, we saw the insurance companies investing into treasury bills and other money market instruments.

“You need to match the nature of your policy with your investment. When you have a policy that has a longer period in your portfolio, you invest that fund in a long term investment to match the policy timeline with the investment horizon.”

On his part, independent investor, Amaechi Egbo urged the regulators to find ways of resolving the problems impeding success in the sector.

He added that a holistic review of the industry laws as well as devising new ways to approach the business in Nigeria, would enhance optimum efficiency in practitioners’ operations and forestall further stagnation in their share prices.


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Nigerian Stock Exchange
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