Insurers average stock below N1 despite premium growth

While insurers in Africa’s largest economy have recorded a growth at the top lines amid continuing challenging macroeconomic conditions, their stock prices, on average, are continually being stuck at below N1, which suggests these firms need a new business model to attract the necessary investment.

For the first three months through March 2016, the cumulative gross premiums written (GPW) of 13 insurance companies that have released first quarter 2016 financial statement on the floor of the exchange increased by 12.83 percent to N45.41 billion, from N40.40 billion the previous year.

Also, combined gross premiums income and net premiums income were up by 9.80 percent and 8.70 percent to N32.82 billion and N25.40 billion respectively.

The growth at the top lines can be attributed to the introduction of regulations by National Insurance Commission (NAICOM).

One of such regulations is the introduction of the No Premium No cover policy that made it mandatory that only cover for which payment has been received directly by the insurer or indirectly through a duly licensed insurance broker shall be recognized as income in the books of the insurer.

While premium income has improved and underwriting performance strengthened evidenced by a favourable combined ratio (CR) below the 100 threshold, the average share price of 13 insurance firms was 61K as June 20 2016, on the NSE.

This is surprisingly lower than N2.38 share price of tier 2 lender Diamond bank.

Industry experts attribute the putrid and unattractive stock price of these firms to different strategic reasons.

The first is that investors don’t understand the intricacies of an insurance business and their expansion plans are nebulous and vague.

The second is the problem of matching investment returns with liabilities, these mismatch easily discourage investors from swooping on insurance stocks.

The third is that investors lack confidence in the ability of management to deliver on its strategic objective of maximising shareholders value given lack of history for paying steady dividends and weak financial ratios.

“ Insurance is more of a long term business than short term so for people that are interested in short term equity gains, insurance might not be what they are interested in,” said the an insurance expert who craved anonymity.

BALA AUGIE