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NEM, Cornerstone Create Value for Shareholders than Peer Rivals

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While the majority of firms have capitulated to unfavorable underwriting conditions, NEM Insurance Plc and Cornerstone Insurance are creating value for their shareholders as evidenced in double digit growth in return on equity.

Sector players are recovering from the coronavirus virus pandemic that undermined energy prices and tipped the economy into its second recession in less than 6 years in 2020, but a rebound in crude oil price on the back of successful rollout of vaccines underpinned business activities and helped the country exit recession.

Even amid mounting claims and spiraling operating costs that prevent top line (revenue) impressive performances from translating into bottom line (profit) growth, NEM Insurance’s return on average equity (ROAE) increased to 14.56 percent in September 2021 from 8.34 percent as at September 2020.

Similarly, Cornerstone Insurance followed the same growth trajectory as it ROAE moved to 11.31 percent in the period under review from 7.62 percent the previous year.

However, other listed firms fell off the cliff as they grappled with deteriorating profit margins, and perhaps more worrisome is that investors’ apathy towards industry stocks remains heightened due to abysmally poor dividend payment.

AIICO Insurance, the largest listed insurer by total assets, saw ROAE decline to 9.13 percent in September 2021 from 27.03 percent as at September 2020. AXA Mansard’s ROAE reduced to 15.40 percent in September 2021 from 26.59 percent the previous year.

Lasco Insurance’s ROAE fell to 6.49 percent in September 2021 from 13.58 percent as at September 2020. Sovereign Trust Insurance’s ROAE dipped to 9.03 percent in September 2021 from 11.14 percent as at September 2020.

Basically, sector players are not able to use investors’ investment to generate additional revenue, and it is important to note that firms are spending their way into the future as operating expenses mounts.

The average industry ROAE reduced to 5.15 percent in September 2021 from 10.91 percent the previous year, according to calculations by MoneyCentral.

The lack of profitability for most insurers highlight the need for an upward review of pricing during the January renewals to compensate for the low yield environment and the central bank may not adopt a hawkish policy soon.

Aside from the improvement in returns to shareholders, NEM insurance generated more in premium income than the claims it paid out, another metrics in which it outperformed peer rivals.

Its combined ratio of 96.86 percent-albeit higher than 89.53 percent recorded the previous year- is lower than the 100 percent threshold. A favorable ratio indicates that an insurer is good at recording underwriting profit.

That compares with AIICO Insurance’ combined ratio (CR) of (106.18 percent); AXA Mansard, (100.16 percent); Coronation Insurance, (160.17 percent); Cornerstone Insurance, (114.28 percent); Lasaco Insurance, (117.52 percent); Consolidated Hallmark, (109.96 percent); Sovereign Trust, (110.54 percent); Royal Exchange, (143.33 percent); Prestige Assurance, (106.14 percent), and Linkage Assurance, (176.66 percent).

NEM Insurance said it will- reconstruct its outstanding shares following receipt of shareholders’ assent as well as approvals from regulators.

The company said it will consolidate every two shares held by each shareholder into one share. As a result, the value will rise from 50 Kobo to N1 per share.

“The Company also received the necessary regulatory approvals from the National Insurance Commission (“NAICOM”) on Wednesday, 27 October 2021 and the Securities & Exchange Commission (SEC) on Wednesday, 1 December 2021 respectively,” NEM said.

Owing to the development, the shares of the company will be suspended from trading on the Nigerian Exchange Limited for two weeks beginning on December 10 to December 23, both days inclusive.

Also the register of shareholders will be closed for the said period to enable the Central Securities Clearing Systems Plc. (CSCS) and Apel Capital Registrars Limited – the Registrars to NEM Insurance, conclude the reconstruction of the shares and produce a new register for the company.

“Once this is concluded, the suspension will be lifted and trading on the shares shall recommence. Please take this as a notice of respect for the above,” it said.

NEM is hoping to earn a gross premium in the sum of N12.2 billion and a profit before tax of N2.7 billion by the end of 2021.

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