Insurance Stocks Gain Momentum on Recapitalisation Prospects

Insurance stocks have gained momentum at the stock market with the Nigerian Stock Exchange (NSE) Insurance Index recording the highest appreciation of 27.6 per cent so far this year, THISDAY’s investigation has revealed.

This follows renewed demand by investors who are hopeful that the insurance companies will successfully recapitalise after the December 31, 2020 deadline was shifted indefinitely.

The National Insurance Commission (NAICOM) had announced the suspension of the recapitalisation, citing the need to obey the December 21 restraining order by Justice C. J. Aneke of the Lagos Division of the Federal High Court.
The commission had directed insurance firms to comply 50 per cent with the recapitalisation requirement and 100 per cent by September 30, 2021.

However, Justice Aneke had restrained NAICOM from taking any further steps in implementing its deadline date for insurance and reinsurance companies to recapitalise.
THISDAY checks showed that confident that the breather from the court will enable the companies to ensure compliance, investors have swooped on insurance stocks since the beginning of 2021.

This development, which has led to the appreciation in prices of most insurance stocks, boosted the market capitalisation sector and lifted the sectoral index ahead of others.
The market capitalisation of the insurance sector has appreciated by N35.7 billion from N148.7 billion at the end of 2020 to N184.3 billion as at yesterday while the NSE Insurance Index, which measures the aggregate price gains of the sector, has jumped by 27.6 per cent.

The sector has thus outperformed the benchmark NSE All-Share Index and other market indices.
It is followed by the NSE Oil & Gas Index, which declined 13.8 per cent last year, thus, trailing the insurance sector with a year-to-date (YTD) growth of 21.2 per cent.

The NSE Consumer Index has recorded a YTD growth of 5.6 per cent, the NSE Banking Index rose by 4.4 per cent.
Market analysts said some discerning investors are finding insurance stocks attractive considering their low valuations and efforts made by some of the companies to comply with the new capital requirements.

According to the NAICOM, insurance companies that want to remain in life business will need a minimum capital of N8 billion from N2 billion; general insurance companies from N3 billion to N10 billion while composite insurance firms’ new capital was jacked up from N5 billion to N18 billion. Those in the reinsurance companies will need N20 billion new capital, as against the current N10 billion.

Many of the companies have activated strategies and plans to meet the recapitalisation deadline. While some have raised additional capital via right issues, some are considering merger and acquisitions.
An investment analyst, Ms. Efeomo Olotu of George Etimi & Partners, had said that the introduction of the new minimum capital requirement was a welcome development to help improve the insurance sector the way the banking recapitalisation in 2005 helped shape the future and development of the Nigerian banking industry.

According to her, currently, Nigeria’s insurance sector is still one of the most underdeveloped compared to its peers.
“With a population estimated at 200 million people, a growing middle class and increased life expectancy rate for Nigerians (55.2 years average for men and women in 2018 from 54.5 years in 2017), the potential for growth in the sector is significant.

However, at 0.3 per cent, Nigeria has the lowest insurance penetration level amongst notable African countries. Currently, South Africa is at 14.7 per cent, Kenya at 2.8 per cent, Angola at 0.8 per cent and Egypt at 0.6 per cent.
“Similarly, the sector’s insurance density is still one of the lowest when compared to its peers,” she said.
She noted that in the previous years, Nigerian insurers have operated on marginal scales, adding that this may be cited as a reason why the market has not benefited much from the sector.

She said the principal objective of the reform is to have an emergence of bigger and stronger players in the industry with enhanced capacity to reach and cover the majority of Nigerians.
Before the court order that lead NAICOM to halt the suspension of the recapitalisation, Chief Executive Officers (CEOs) of insurance companies were said to have urged the commission to waive the first phase of its segmented recapitalisation from December 31, 2020.

The CEOs were said to have made the call during a meeting with Insurance Commissioner, Mr. Monday Thomas, in Ogun State.
One of the CEOs was quoted as saying: “The waiver will give the insurance and reinsurance companies more time to settle back to business and pursue their full recapitalisation programme in order to meet the commission’s set objectives by December 31, 2021.”

Similarly, the House of Representatives had called for the suspension of the recapitalisation following the adoption of a motion by Hon. Benjamin Kalu (APC-Abia).

According to Kalu, in addition to the negative economic impact of the COVID-19 pandemic, the Nigerian economy was just announced to be officially in a recession, noting that this signified that there will be a significant slowdown in economic activities and the liquidity position of both the government and businesses are seriously impacted albeit, negatively.

<<Thisday>>