Investors’ Confidence in Insurance Stocks Resurges on Recapitalisation Sentiments

•Sector rises from N107.484bn in five months to N112bn

Goddy Egene

Investors’ confidence in insurance stocks has continued to increase as some of the companies in the sector have made positive efforts to comply with the new capital requirements for operators in the industry.

The National Insurance Commission (NAICOM) had on May 20, 2019 raised the minimum paid-up capital of insurance companies. For instance, 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 went up from N5 billion to N18 billion. Also, re-insurance companies would need N20 billion as against the current N10 billion.

The insurance industry regulator had last year announced a similar recapitalisation that was later suspended.
THISDAY checks showed that five months after that announcement, most insurance stocks have remained resilient and gaining momentum as investors increased demand for them.
Consequently, the value of the insurance sector on the Nigerian Stock Exchange (NSE) has increased from N107.484 billion to N112 billion, which is about 3.7 per cent.

This is a positive development considering investors’ apathy that had trailed the sector on the NSE over the years.
Market operators said given the bear run that has persisted since the beginning of the year, an appreciation in the value of the sector was an indication of growing investor confidence in the sector despite the recapitalisation worries earlier envisaged.
A stockbroker, Mr. Ayo Oguntayo, said while some investors had seen value in the stocks given their current low prices and were consolidating their investment, the recent approval by NAICOM of the recapitalisation plans of some operators had led to more confidence.

NAICOM had last month approved the recapitalisation work plans of 26 insurance companies trying to raise more funds in their bids to meet the June 2020 deadline for players in the sector to shore up their capital.

According to the commission, out of a total of 57 insurance firms and two reinsurance firms in the country, 47 insurance firms and two reinsurance firms submitted their plans.
The regulator said 17 insurance firms with defective work plans were corrected and advised to resubmit new plans using paid-up capital and not shareholders’ funds in recapitalising.

Four insurance firms did not have the requisite 2018 financial statements and were advised to review their plans of using initial public offer (IPO) to raise funds.
Oguntayo said the update on the recapitalisation plans by insurance firms boosted more confidence among investors, who are now more hopeful that significant number of the firms would meet the compliance deadline of 2020.

“Since, the recapitalisation directive was announced last May, most of the operators had seen the need to raise their capital requirements if they really want to remain competitive. That is why the opposition to the announcement was not sustained. Also, the time frame given to them to comply is considerate for any serious player to comply. And we can see the efforts being made from the announcement by NAICOM, where it had approved the plans of 26 firms. This shows that the operators are willing to comply and remain in business. And given the low valuations of stocks, discerning investors are now increasing their investments,” Oguntayo said.

Some operators in the insurance had hailed the decision of NAICOM and called on others to embrace the recapitalisation move.
One of such operators was the Managing Director of SUNU Assurances Nigeria Plc, Mr. Samuel Ogbodu, who said the recapitalisation would help to consolidate the sector and lead to the provision of the more buoyant opportunities for large ticket transactions.

He added that the exercise =would also position insurance companies in the country as big players instead of serving as agents to foreign insurance underwriters.

According to him, the Nigerian insurance sector, if well positioned, would take its rightful place in the country’s economy, noting that insurance companies at the end of the recapitalisation programme would be able to take up opportunities hitherto taken by foreign companies.

Similarly, the President, Chartered Insurance Institute of Nigeria (CIIN), Mr. Eddie Efekoha, commended NAICOM for initiating the recapitalisation, pledging operators’ support for the exercise, which he said would help grow the sector.

He said: “I have never seen a policy that only has the good side and no bad side and no timing can be right because it is only God’s time that can be the best. I think that the more we are positive about this recapitalisation exercise, the more chances we would have on overcoming some of the challenges that come with it.”

Also, the President, Institute of Loss Adjuster of Nigeria (ILAN), Mr. Femi Hassan, said: “I know the operators want this recapitalisation to take place, but the investors who have put their money into the insurance companies are the ones kicking against it. But nevertheless, I am optimistic that, in the long run, every party will see reasons for it.”