Poor governance, corporate performances impact insurance equities

•Share value stagnant for five years, experts demand better regulation

The poor patronage of insurance products, which has resulted in poor corporate performance of the sector and stagnation in their share prices in the past five years, is unsettling the market. Indeed, the sector has witnessed a prolonged stagnation as the economy suffered a harsh operating environment in recent years.

A five-year review of performance of companies in the sector showed that many of the stocks are currently trading at a discount while others have remained inactive despite the industry’s huge potential for growth. Shareholders have argued that many listed insurance firms have poor corporate governance structures hence their poor management translates to non-payment of dividends.

For instance, Standard Alliance insurance, which stood at 44 kobo as of 2018, depreciated to 20 kobo at close of transactions on Friday, September 8, 2023, while Goldlink insurance also dipped from 54 kobo to 20 kobo. Prestige Assurance closed at 46 kobo last week Friday from 50 kobo it traded in 2018. Universal insurance and Regency Assurance remained static at 22 kobo and 40 kobo. Other insurance stocks trading below 50 kobo are Guinea Insurance currently trading at 36 kobo, Mutual Benefit (47 kobo), Sovereign Trust Insurance (42 kobo), Staco (48 kobo) and Veritas Kapital (27 kobo).

The decline in stock prices over the last few years may be closely connected to its poor performance, as many of the insurance firms have not paid dividends to shareholders, which has adversely affected the industry’s image and consequently eroded confidence in the stocks. The 2022 full-year result of Prestige Assurance showed that pre-tax profit dropped by 80.45 per cent to N143.11 million, down from N732.23 million in 2021. The report also showed that the company reported a net premium income of N5.39 billion, a 17.43 per cent increase from N4.59 billion in 2021.

During the period, the company’s profit after tax fell by 91.42 per cent standing at N59.04 million against N688.28 million in the same period of 2021 as underwritten expenses increased. Within the same period, Guinea Insurance reported a net loss of N23.15 million compared to net income of N745.1 million a year ago. The basic loss per share was N0.0038.

Dissatisfied with the poor performance of their investments, investors stressed the need for operators in the sector to be more innovative and diversify into new businesses to boost profitability. An independent investor, Amaechi Egbo said the sector would not record any meaningful growth unless operators improve their corporate governance practices and ensure that all genuine claims are paid promptly. According to him, the high level of payment default by operators in the industry is a major contributory factor to shortfalls in investment in Nigeria’s insurance sector.

Egbo admitted that there is a huge opportunity within the space in Nigeria, however, he pointed out that there is a need for operators to urgently retool or reimagine their business models, risk and overall operations to build confidence and attract more investment into the space.

He said this could be achieved by leveraging modern digital technology that would enhance insurance penetration, adding that there is also a need for business diversification to enable them to survive current economic realities. Co-founder of the Nigerian Shareholders Solidarity Association, Gbadebo Adetokunbo, said the industry needed a better regulatory intervention to tackle problems impeding the growth of the sector over the years.

“The sector needs urgent interventions, especially in the areas of ensuring good corporate governance standards. NAICOM, which happened to be the regulator, needs to be overhauled.” “Take a look at the banking/insurance industries in Nigeria, while one is making progress on return on investment, the other is recording losses whereas the insurance sector happened to be the engine room of the economy in other emerging economies,” he said.