Thirty five percent of the most liquid and capitalised insurers are not paying dividends to their shareholders, which validates investor apathy towards the listed these firms, quite evident in their stock prices.
Linkage Assurance Plc, Guinea Insurance Plc, Veritas Insurance Plc, Universal Insurance Plc, Coronation Insurance Plc, with a combined negative reserves of N39.09 billion as at December 2022 are prohibited from by law to reward their owners.
Many investors rely on dividends from their investments to provide much-needed income. But companies aren’t always allowed to continue making dividend payments. If a company no longer has any retained earnings on its balance sheet, then it typically can’t pay dividends except in extraordinary circumstances.
The regulators prohibit such payment so as to protect the capital of firms and prevent insolvency, whereby they no longer have the financial strength to meet obligations to policyholders.
Of course, investors crave for dividend paying stocks, which is why a lot of times stocks rally in expectation of the declaration of a bumper dividend.
However, investors have been dumping insurance stocks due to abysmally poor payouts as the sector was the worst performing stock on the Nigerian Stock Exchange in 2022.
The sector is also beset by a myriad of challenges such as little awareness & understanding of insurance products, lack of trust especially with regards to claim settlement, socio-cultural & religious beliefs of Nigerians, weak enforcement of compulsory insurance policies, and the weak macroeconomic environment significantly weakened investors’ sentiments towards sectors.
Interestingly, the stock price of the majority of insurers are below N0.50 while the N2.30 share price of the largest insurer by market capitalisation AXA Mansard Plc is lower than the N5.39 stock price of Tier 2 lender, Fidelity Bank.
Similarly, the sector remained underpriced with price to earnings (P/E) and price to book (P/B) of 5.60x and 6.0x respectively below its South Africa (PE: 11.00x, PBV:1.90x), Ghana, (PE: 0.80x), Egypt, (PBV: 1.00x); Kenya,(PBV:0.70x); Brasil, (PE: 8.30x, PBV, 2.0X).