Insurance companies, capital raise and plan for 2018

Many insurance companies in Nigeria will in 2018, approach the capital market to raise fresh capital in line with the wave of transformation that is expected in the industry in 2018.

The industry regulator, the National Insurance Commission (NAICOM) will be expanding the implementation of the Risk Based Supervision (RBS) that requires companies to match their capital base with the level of risk that they want to carry on their balance sheet.

Therefore, companies that want to raise their stake in big ticket risks in oil and gas, aviation and engineering will require more capital to match those risks.
How these companies will fare in the capital market as it affects investors and shareholders’ perception will determine how far they can go with their offerings. So, if investors look at companies’ dividend history, the rating may not be very favourable for a number of firms, particularly those that have not paid dividend in a long while.
However, what shareholders should be looking at more is the management of those companies, their product offerings and what plans they have for the future. Many of the companies suffered huge losses in the capital market during the 2008/2009 economic recession where they invested larger part of the funds they raised during the industry’s 2007 recapitalisation exercise.
And since then, many of them have not come of out of that hole and this has negatively affected their performance and liquidity. They have been making provisions for the losses and consistently have been unable to pay dividend to their shareholders.
What many of them need is fresh capital to resuscitate their business, and any capital boost could likely take them out of the woods and reposition them for profitability.
NAICOM has said that the potential capital raising exercise and the new risk base supervision framework will strengthen the insurance industry to compete effectively with its peers in other jurisdictions, such that they can be compared side by side with other insurance companies within and outside Africa. But it is not capital that will make Nigerian insurers competitive. It is the management.