In the last seven years, Nigerian insurers quoted on the bourse have collectively earned N657.18 billion in gross premium income, according to data compiled by MoneyCentral.
These firms maintained steady growth in 2020 as gross premiums income increased by 8.79 percent to N128.58 billion from N118.18 billion.
Growth was supported by the improvement in both life and non-life insurance segments, but the premium has been growing by single digit; however, in 2018, there was a 18.17 percent uptick at the top lines.
The Nigerian insurance industry lags peers in major indicators such as penetration and density, but the recapitalization exercise propose by the regulator could boost capacity.
Nigeria’s insurance penetration stood at 0.5 percent, which compares with South Africa (12.9 percent), Kenya (2.8 percent), Angola (0.8 percent) and Egypt (0.6 percent) while density at $6.2 also remains weak compared to South Africa ($762.5), Kenya ($40.5), Angola ($30.5) and Egypt ($22.8).
According to the National Bureau of Statistics (NBS)’s Gross Domestic Product Report, the insurance sector of the Nigerian economy contracted by 28.15 per cent in the second quarter of the year.
Analysts say the poor level of growth is largely due to little awareness and understanding of insurance products, lack of trust especially with regards to claim settlement, socio-cultural and religious beliefs of Nigerians, weak enforcement of compulsory insurance policies and the slow pace of innovation amongst industry participants.
They added that weak macroeconomic environment affects insurance adoption given weak economic growth and high unemployment and poverty rates.
The economy contracted by 1.87 percent in the second quarter of 2020 while unemployment rate in the same period stood at 27.10 percent from 23.10 percent in the third quarter of 2018, according to the NBS data.
Interestingly, most listed insurers trade at below N0.50 as their valuations are weak compared to peers. Before the cap on N0.50 was removed by the Nigerian Stock Exchange, over 80 percent of companies had their share price stuck at N0.50.
Investors are not willing to buy shares of entities that can’t magnify their earnings in form of bumper dividend and share appreciation. And that’s because the earnings capacity of firms is too weak because they do not have strong capital to take on more risk.
Nigerian insurers in the market have an average price-to-book ratio of 0.43x compared with South Africa (1.99x), Egypt (1.65x) and Kenya (0.64x), according to data from Afrinvest Securities Limited.
“This indicates investor apathy towards the listed insurers, quite evident in their stock prices,” said analysts at Afrinvest Securities.
“Although this underpricing appears attractive from an investment standpoint, we believe the pricing is synonymous with the value-added by the insurers over time in terms of performance,” said Afrinvest Securities.
The coronavirus pandemic and social distancing and lockdown policies paralyzed business activities, a triple whammy for an industry that is struggling with a myriad of challenges.