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Insurers have generated profit for their investors even as falling valuations continue to drag stock prices down, which underscores the myriad of challenges bedeviling a sector that contributes less than one percent to the economy.
The average industry return on average equity (ROAE) increased to 9.58 percent in September 2022 from N3.85 percent as at September 2021, according to MoneyCentral calculations.
A reduction in fair value loss on financial assets, double digit growth in revenue underpinned by reopening of the economy, and a gradual uptick in interest rate that spurred investment income are the major drivers of returns.
The combined net income or profit after tax (PAT) of sector players spiked by 306.23 percent to N20.15 billion in September 2o22, the fastest profit growth in more than a decade, according to data gathered by MoneyCentral.
However, the surge in profit and improvement in ROE have not added impetus to the stock valuations of companies as the insurance sector is the worst performer on the NGXASI index.
The NGX-ASI insurance sector index has shed -21.86 percent since the start of the year, underperforming the NGXASI index gains of 4.16 percent.
The weak sentiment is on top of a broader selloff in stocks at the equity market as investors are wary about a possible looming political instability immediately preceding next year’s elections and macroeconomic uncertainties.
In terms of market valuation, the insurance sector was poorly priced with a price-to-book ratio of 0.64x compared to Brazil (2.58x), South Africa (2.48x), Egypt (1.66x), and Kenya (0.65x).
Analysts say the weak sentiment amid earnings growth is due to persistent regulatory uncertainty, weak enforcement of compulsory insurance policies, history of delayed claims settlement, tough operating landscape, lack of trust, and low awareness of insurance benefits.
“These factors continue to limit industry players from tapping the full potential of Nigeria’s large population (growing at c.2.6% p.a.),” said analysts at Afrinvest Securities.
It is obvious that the regulators’ continuous shifting of the goal post or postponement of the recapitalisation deadline has heightened uncertainty as investors have lost confidence in the entire system.
Analysts and market participants were optimistic the scheme would spur mergers and acquisition needed to upscaling the industry’s underwriting capacity for big ticket risks, unlock growth, and elevate the industry’s global competitiveness.
AIICO Insurance Plc whose shares have shed -20.44 percent saw net income surge by 152.88 percent to N6.13 billion as at September 2022 from N2.42 billion the previous year. The insurer’s ROE increased to 20.08 percent in the period under review from 9.04 percent the previous year.
Mutual Benefit Assurance Plc posted a profit of N3.6o billion from a loss of N3.46 billion the previous year, but its shares have lost 3.67 percent since the start of the year.
NEM Insurance Plc has a negative year to date (YTD) of 16.67 percent while the ROAE moved to 21.70 percent in September 2022 from 14.77 percent the previous year.
Consolidated Hallmark Insurance Plc shares returned a negative YTD 22.78, but net income was up 25 percent to N668.04 million as at September 2022.
Coronation Insurance Plc that posted a profit of N606.89 million from a loss of N711.12 million has a negative YTD of 41.07 percent.
Linkage Assurance Plc returned to the path of growth and will be paying shareholders a dividend this year as it posted net income of N2.08 billion in the period under review from a loss of N1.78 billion in 2021, but its shares have shed 17.65 percent.
On the flip side AXA Mansard’s net income dipped -55.04 percent while its shares shed 23.71 percent so far this year. Cornerstones net income fell by 37.19 percent as it has a negative YTD of 4.35 percent.
“The sector is greeted with increased apathy by investors given the heightened uncertainty surrounding recapitalization of the industry, and high claims and underwriting cost,’’ said analysts at Meristem Securities Limited.