Low Returns on Investments Hurts Insurers’ Expansion Bid

Ebere Nwoji

Despite the suspension of recapitalisation of insurance companies by the National Insurance Commission (NAICOM), low returns on investment as well as the poor performance of operators have continued to scare investors from the sector.

THISDAY learnt that operators in the sector vehemently opposed the earlier directive by the regulator that they should shore up their capital base because of the apparent investor apathy in the sector.

Findings also showed that some firms were even advised against raising capital from the stock market because of their poor returns on investments, especially the uninspiring performance of the sector on the Nigerian Stock Exchange (NSE).

A number of insurance firms that called for extra ordinary general meetings following the NAICOM directive were disappointed over shareholders’ reactions about their fund raising proposals.

Speaking on the development, President, Progressive Shareholders Association of Nigeria, Mr Boniface Okezie, pointed out that with the situation on the ground and considering Nigeria’s investment climate, insurance sector is the whipping boy.
According to him, the insurance sub-sector on the NSE is a no go area for investors because of its low returns.

He queried why any investor would want to touch insurance stock some of which sell for 20 kobo against N10 price investors purchased some of the shares several years ago.
He alleged that some of the insurance managers misused the money they realised from the market through investment in other less viable businesses.

He said the worst challenge facing the operators is that the regulator did not carry out a proper feasibility study before announcing the recapitalisation.

According to him, directing firms to recapitalise on the eve of a general election was wrong “as everything centres around politics now and given the uncertainty in Nigerian political terrain, even foreign investors are afraid of coming into the country because they do not know what 2019 holds for everybody in Nigeria.”

On the way forward for the industry, Okezie said NAICOM should employ the services of risk analysts and other relevant professionals to analyse the challenges facing the industry and come up with lasting solution that would change the face of the sector.

But the Managing Director, AIICO Insurance, Mr. Edwin Igbiti, said investors were free in their choice on how and where to spend their money.
He also said every company has its strategy, but insisted that AIICO pays dividend annually and rewards its investors appropriately.

He advised insurance companies whose offers were rejected to look inwards in their bid to raise capital.
He said, “The small companies should look inwards, insurers should reinvent themselves, insurance is a business of the future, investors should better buy now before it becomes expensive.

“Investors have right and choice of where and how to invest their money.”
Also, the Director General, Chartered Insurance Institute of Nigeria(CIIN) and former Managing Director Royal Exchange, Mr Richard Borokini, said it was certain that only quoted companies have right to trade their shares on the floor of the NSE.
According to him, some investors might prefer preference shares because it attracts more dividend.

He argued that the share prices of insurance stocks depend on performance and dividend pay-out, adding that capital would naturally go to where it is optimally utilised.
He, however, noted that the greatest challenge confronting the sector is awareness and low purchasing power of the people.

NAICOM last week formally announced the suspension of the implementation of its tier-based minimum solvency capital policy, otherwise known as the recapitalisation of the industry. The regulator, in a circular to all insurance institutions entitled: “Update on the implementation of the Tier-based Minimum Solvency Capital policy for insurance companies in Nigeria,” had directed insurance companies to continue with the subsisting regulatory framework prior to the circular.