Weak economy, trust deficit threaten insurance performance

Weak economic performance, low confidence and poor patronage have continued to threaten the operations and survival of insurance companies, leading to depreciation and sometimes stagnation of their share prices on the Nigerian Exchange Limited (NGX), which are currently below book value.

Book value is the net asset value of a company after liabilities are deducted. It is always the least price any owner would want to sell a company.

Due to a tradition that seems to distaste insurance, following the inability of some companies in the sector to settle claims promptly among others, confidence in the industry continues to wane.

The sector’s low performance to poor reporting and lack of reforms needed to drive inves­tors’ participation are major factors slowing the growth of the sector.

Also, many firms in the sector performed woefully in their financials over a protracted period, paying no dividends and declaring losses.

Findings by The Guardian revealed that Custodian and NEM insurance is the only insurance firms with a track record of consistent payment of dividends over the last five years.

A look at the stock price of some insurance companies quoted on the exchange showed that AIICO insurance has depreciated from 95 kobo as at April 2021 to 53 kobo as at Tuesday, while Axamansard suffered the same fate as it drops from N2.43 kobo to N2.29 kobo during the same period.

Lasaco fell from N1.19 kobo to N1.16 kobo, while Linkage Assurance declined to 44 kobo from 60 kobo in 2021. Niger insurance, Guinea insurance and Standard insurance have remained static at 20 kobo in the last two years, trading below par value.

In its financial performance, Guinea Insurance Plc recorded a profit of N6.98 million in 2022, coming after three years of consecutive losses.

The insurance company made its last profit in 2017, the highest in 10 financial years before recording a loss of N190 million, N795 million and N227.6 million in 2018, 2019 and 2020 respectively.

Guinea Insurance recorded its first profit in four years in 2021 occassioned by an increase in its gross premium, which surged 35 per cent to N1.35 billion in the year ended December 31, 2021 from N1 billion in 2020.

However, fees and commissions dipped by 11.1 per cent to N71.5 million from N80.5 million in the year-ago period.

As at Tuesday, the insurance firms that fall under this category are Coronation 38 kobo, Goldlink Insurance 20 kobo, Guinea Insurance 20 kobo and Linkage Assurance 44 kobo.

Others include Prestige Assurance 49 kobo, Regency Alliance Insurance 29 kobo, Staco 48 kobo, Standard Alliance 20 kobo, Mutual Benefit 32 kobo and Sovereign Insurance 27 kobo.

Furthermore, investors had also expressed concern over the free fall in the shares of insurance companies on the nation’s bourse.

As at the close of transaction, six insurance firms recorded price depreciation.

Precisely, Linkage Assurance shed 8.33 per cent to close at 44 kobo, while Sovereign Trust depreciated by 6.90 per cent to close at 27 kobo.

Regency Alliance Insurance lost 6.45 per cent to close at 29 kobo. Mutual Benefit dropped 5.88 per cent to close at 32 kobo. AIICO also dipped by 5.36 per cent to close at 53 kobo.

Stockbrokers who reacted to the development of the sector would fare better if people are well enlightened on the benefits of insurance and companies imbibe prompt settlement of claims.

Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said insurance stocks are trading below book values, a reason most listed companies are reluctant to approach the market for equities capital raising.

According to him, no responsible board of a public company would approve equities capital raising at a deep discount to its book value. “It is even more worrisome when you look at what operates in the yield environment.

So, most stocks haven’t done well relative to their intrinsic values, since the time of global financial crisis in 2008,” he said.

Head of Equity, Planet Capital, Dr. Paul Uzum, said a good number of insurance firms have failed to release their audited account and pay a dividend to shareholders in the past few years.

According to him, because investors have a long memory, if they have been disappointed by several insurance firms, they will shun the sector.

However, he argued that those that are performing well and rewarding investors will be properly priced over time.

Vice President of Highcap Securities, David Adonri, also added that companies in the insurance sector are more profitable currently but are still lagging when compared to other sectors.