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Rising yields benefit insurers investment portfolios amid mounting obligations

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The largest listed insurers are benefiting from rising yields on fixed income instruments as investment income underpins profit even amid mounting obligations to policyholders.

Investors are concerned about the financial positions of entities because they expect to receive their returns of dividend and share appreciation.

The 16 insurers have collectively grown net income by 12.94 percent to N11.45 billion in March 2021, according to data gathered by MoneyCentral.

However, combined profit spiked by 75.66 percent in 2020 financial year, but bottom line was flat in 2019, 8.76 percent in 2018, reduction of o.39 percent in 2017, and there was an increase of 25.22 percent in net income in 2016, according to trend analysis by MoneyCentral.

The rising bond yields is a boon for investment assets that help make up for spiraling claims, underwriting, and management expenses, all of which hinders premium growth from translating into strong margins.

The Nigeria 10 Years Government Bond has a 12.466% yield as of JULY 15, according to data gathered by FMDQ.

That is a remarkable improvement to 2019 when yields crashed to between 2 and 4 percent due to the decision of the central bank to bar individuals and corporate from its Open Market Operations.

Yields on fixed income instruments which were depressed last year (due to the central bank’s dovish monetary policy amid the pandemic) have been on an upward trajectory in 2021 amidst strong local demand for higher yields and the need to attract foreign interest in Nigerian securities amid a dollar shortage.

The good tidings are that analysts at United Capital Research said they expect the trend will continue because OMO Net treasury yields have tracked higher.

The impressive growth at the bottom line (profit) to the relaxation of the lockdown measures and sit at home orders by the government that propelled business activities.

Also, the advancement in the supply of first round Covid-19 to Nigeria underpinned the gradual economic recovery.

Economic activities expanded by 0.51 percent in the first quarter of 2021, a reasonable growth accumulation from 0.11 percent in the fourth quarter of 2020, according to data from the National Bureau of Statistics (NBS).

For the first three months through March 2021, AXA Mansard’s net income spiked by 34.30 percent to N2.63 billion from N1.95 billion the previous year.

Mutual Benefit Assurance’s net income surged by 111.95 percent to N2.63 billion in March 2021 from N1.95 billion the previous year. It has been magnifying profit in the last five years.

Wapic Insurance Plc net income spiked by 79.44 percent to N648.24 million in the period under review from N361.25 million the previous year.

Cornerstone Insurance’s net income grew by 38.52 percent to N658.15 million in March 2021 from N475.11 million the previous year.
Consolidated Hallmark’s net income increased by 39.11 percent to N291.45 million in March 2021 from N209.50 million as at March 2020.
Regency Assurance Plc net income surged by 95.79 percent to N427.88 million as at March 2021 from N218.53 million as at March 2020.

Prestige Assurance Plc 22.18 percent to N710.63 million in March 2021 from N581.61 million as at March 2020.

Veritas Kapital’s net income surged by 708.12 percent to N301.51 million in the period under review from N37.11 million as at March 2020.
However, AIICO Insurance, Custodian Investment, and Lasaco recorded a reduction in profit.

The majority of analysts say there won’t be strong profit growth in the future due to rising claims expenses, and they added that a benign  yield environment means insurance  will continue to be profitable.

The valuations of insurers have been unattractive because they do not pay bumper dividends like their bank counterparts that have robust earnings that makes it much easier for them to handsomely reward their owners. That explains the investor apathy towards listed insurers’ share prices.
The average price-to-book ratio Nigerian insures stand at 0.6x, that compared with South Africa (2.45x), Mauritius (1.21x), Egypt (1.65x) and Kenya (0.67x). This indicates investor apathy towards the listed insurers, quite evident in the stock prices.

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