The new capital requirement by the regulator is an opportunity for foreign investors to invest in Nigerian insurance market as shares of companies are cheap.
Among the country’ financial institutions, insurers have the lowest price-to-book ratio, which measures the stock price against the value of assets minus liabilities.
Nearly all the companies are trading at a price below their book value.
Only AXA Mansard, NEM, and Continental Reinsurance with price to book of 0.84, 0.71, and 0.64, are above the industry average of 0.3639.
Experts say insurers are unable to deliver a higher return to shareholders in form of share appreciation and bumper dividend because they do not have the capacity to take on more risk.
Insurers in Africa’s largest economy are grappling with deteriorating margins, weak premium income growth, and rising combined ratios as huge claims are undermining underwriting capacity.
The cumulative profit after tax of the largest insurance companies that have released half year results fell by 5.70 percent to N17.05 billion from N18.02 billion as at June 2018.
Experts are upbeat that the new minimum capital requirements by National Insurance Commission (NAICOM) will help underpin the capital base of operators in the industry, and they added that companies are losing big jobs to their foreign counterparts due to weak capital.
The regulator has announced a new Minimum Paid-up Share Capital Policy for insurance and reinsurance companies in Nigeria.
The revised paid-up capital requires life Insurance business operators to raise its capital from N2 billion to N8 billion; General business from N3 billion to N10 billion, while that of Composite business has been jerked up from N5 billion to N18 billion.
NAICOM stated that the last recapitalization was down in 2005/2007, but the industry has witnessed astronomical growth in the value insured assets with exposure to higher level of insured liabilities and increased cost of insurers.
Some insurance companies have started the race to recapitalize as the clock continues to tick faster towards the deadline for the exercise.
We have since seen Mutual Benefit and Sovereign Trust Insurance (STI) opt for capital raising.
Mutual Benefits raised N1.59 billion via rights issue in 2018 (79.50 of the N2 billion offered) while STI also recently conducted a rights issue of 4.20 billion shares of N0.50/share 91 (1 for 2) to raise N2.10 billion.
Similarly, Consolidated Hall Mark Insurance is in talks with its shareholders to raise N3.90 billion so that it meets a short fall of N3.65 billion in shareholders’ fund and N5.63 billion in qualifying capital.
STI and Prestige insurance have disclosed their intentions to raise share capital to N10 billion, from N7.50 billion and N3 billion.
However, analysts have raised concerns that the volatility in the stock market could make it practically difficult for insurers to raise capital.
Morever, there has been few activities on the floor of bourse except the listings of MTN Nigeria and Airtel.
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