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Saturday, September 23, 2023

Profit Taking Sends Insurance Stocks Back to Earth

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The year started brilliantly for insurance stocks as the insurance index raced to 30 percent return in January alone. However, aggressive profit taking in insurance stocks over the past week has sent the share prices back to earth, reducing year to date return to around 22 percent as 4 insurance stocks ended the week among the top 10 price decliners on the Nigerian Stock Exchange (NSE).

Linkage Assurance suffered the biggest drop on the NSE during the past week with share prices falling as much as 33.3 percent.

Analysts are still bemused as to why the share price collapsed by one-third barely a week after the company announced year-on-year profit before tax (PBT) growth of 90 percent in its 2020 financial year while gross premiums grew by as much as 28 percent year-on-year.

Behind Linkage Assurance on the price decliners list was AIICO insurance which fell about 13.57 percent during the past week.

AIICO insurance which had seen its stock rally from a six-month low of N0.72 to a year high of N1.59 in mid-January has seen its stock price drop to N1.21 as at Friday, effectively shedding 24 percent off its market capitalization.

DF Holding, the largest shareholder in AIICO insurance had been aggressively buying shares in the company, which saw the company purchase an additional 501,777,905 units of AIICO shares in January, spending an estimated N585.2 million in the process which helped to boost AIICO prices in January.

The completion of DF Holdings in the stock may have brought to rest the support that the stock prices was enjoying at the beginning of the year, effectively allowing the stock to decline modestly as investors take profits from the rally. AIICO was the third worst performing stock on the local bourse during the past week.

Regency Assurance and Mutual Benefits Assurance also saw their stock prices decline by 11.76 percent and 11.63 percent respectively.

Bringing the total insurance decliners on the top 10 losers list to 4. As the financial statements of the insurance companies are released over the coming weeks, analysts are largely pessimistic about the performance of the companies for the year 2020 considering the deep economic downturn in Nigeria last year.

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