The combined net income of key insurance firms surged by 103.30 percent to N24.13 billion in 2016 but only 35 percent of the 23 insurance firms paid dividend in 2016 financial year, as most of the firms in the sector are grappling with negative retained earnings and poor liquidity position.
Of the 23 listed insurance companies on the exchange, only Continental Re, Custodian and Allied, NEM Insurance, Regency Insurance, Lasaco Insurance, Consolidated Hallmark, AIICO Insurance, and AXA Mansard Insurance were able to declare dividend, though the dividend declared by these firms were all below one naira per share.
A cursory look at the 2016 audited financial statements of these firms show cumulative dividend stood at N4.13 billion as at December 2016 while dividends pay-out ratio (dividend as a percent of net income) ranged between 33 percent and 62 percent.
The low returns to shareholders come as foreign investors pick up interest in the sector. AIICO announced on 10 August, that it has begun non-binding discussions with a group of investors with the aim of selling equity, if an agreement is reached. Similarly, investors are said to be in discussion with Goldlink Insurance.
But Analysts say shareholders in insurance firms will have to wait longer to get good returns on their investment because underwriters cannot pay dividend unless losses in their balance sheets are extinguished.
Nicholas Opara, Director, Finance and Account, National Insurance Commission (NAICOM), at a recent conference in Gombe, said the Companies and Allied Matters Act stipulates that losses must be written off before dividends are declared to shareholders.
“If you look at their books, on a current basis, a good number of the companies are posting profits. But we would not forget so easily that following the downturn in the capital market in 2008, a good number of insurance companies incurred huge losses. “So they had to make provisions for the losses and doubtful investments. The effect threw their reserves into a loss position,” he explained.
For instance, Guinea Insurance, Goldlink Insurance, Universal Insurance, International Energy Insurance, Cornerstone Insurance, Staco Insurance, Sovereign Trust Insurance and Mutual Benefit Insurance, have not paid dividend in three years, as negative retained earnings erode shareholders value.
Experts say many insurers are not able to create the necessary awareness for investors to invest in their companies, which explains why their stocks are stuck at 50 kobo.
BusinessDay analysis show that 10 of the 15 insurance stock on the Exchange Insurance Index (NSE) are trading at 50 kobo per share, while six firms have negative retained earnings.
“If these firms pay consistent dividend, their share price will go up. There has to be increased demand for insurance stocks. Government should enforce laws that will make insurance more competitive,” said Moronfola Monsuru, an actuarial analyst.
Aiico Insurance’s net income surged by 759.66 percent to N10.23 billion as at December 2016 but its payout ratio was just one percent. It even cut down on payment, as total dividend reduced by 20 percent to N138.60 million.
Analysts say firms pay out less from earnings or reduce payments, in order to finance projects with a positive net present value.
In other words, such a policy gives them the leeway for meeting working capital requirements.
However, AXA Mansard Insurance increased dividends to stockholders as total pay-out spiked by 150 percent to N525 million in the period under review, despite a proposed capital investment.
According to a recent filing at the Nigerian Stock Exchange (NSE), AXA Mansard said it is in the process of partnering with the International Finance Corporation (IFC), a member of the World Bank Group and a couple of other companies, on the possibility of investing in a hospital project.
Continental Reinsurance and Custodian and Allied Insurance increased payment to owners of the business, as total dividend increased by 16.93 percent and 99.87 percent to N1.45 billion and N1.05 billion as at December 2016.
Both firms recorded the strongest dividend Yield or DY (percent of dividend to market price). Continental Re has a DY of 11.11 percent and a payout ratio of 47 percent while Custodian and Allied a DY of 7.02 percent and a payout of 20 percent.
BALA AUGIE
