Insurance Stocks May Take More Time to Reward Investors

News has it that insurance stocks are upbeat at the Nigerian Stock Exchange with few of them said to have declared good returns on investments. Blessing Nwobodo in this piece relies on the opinion of experts to weigh the extent of recovery and whether the insurance industry is beginning to sail.

Financial analysts say the poor performance of insurance stock is as a result of lack of returns accruing to investors from their investment in the sub-sector. Insurance companies are usually overweighed with unpaid premiums, which reduce their chances of investing in profitable ventures.

Prior to the recession, the insurance sector had very great prospect. After the banking consolidation that led to a high performance for the banking stocks on the stock exchange, insurance stocks took its turn since the sector also had its own consolidation. To this end a lot of investor’s especially fresh ones and institutional investors moved into the sector hoping to reap high returns. While some of the investors reaped high returns, a majority was caught in the market downturn, which saw prices as high as 5-6 naira per share drop to 57 kobo per share. The losses were so huge that investors lost confidence and started dumping the shares.

Recently on one of its features, AM express a breakfast show on NTA, Lagos reported that insurance stocks in the last three months recorded good returns on investments on the stock market. The new development according to an analyst who featured in the report was a result of the publicity which the industry had dolled out of late.

But Ben Tialobi, editor, Stockswatch magazine and a financial analyst disagrees with the report stating emphatically that the insurance sector had not fared very well at thestock exchange market as reported. According to him even as the other sectors are beginning to recover from the downturn, the insurance sector remains down.

“With the exception of Custodian and Allied Insurance, AIICO, Guaranty Trust Assurance and Prestige Insurance, the others are faring badly on the exchange market. In fact we have more than ten companies in the sector that are selling at their nominal level,” he says.

Corroborating Tialobi’s stance, Adebayo Jones, insurance consultant and major capital market player points out that the performance level of the insurance sector in the last three months cannot be compared to that of the banking sector.

“While some of the insurance stocks have started kicking-off, their performance level cannot be compared to that of the banks,” he states, adding that the non performance of the insurance stock is due to lack of investible funds.

“The industry is currently weighed down with unpaid premium and thus cannot do major investment. The federal government who is the largest insured is indebted to the industry to the tune of two billion naira as at last year,” he states. Jones also points out that “the companies that are supposed to engage the services of insurance companies are equally in comatose.”

Meanwhile the success of the few insurance companies said to be doing well on the exchange market is attributed to their concentrating on their areas of specialty. “While most of the insurance companies were busy investing in the capital market and the oil and gas sector, which is not their area of core competence the few successful ones that are making profit today invested largely on insurance,” Tialobi says.

With the various campaigns which the insurance industry have staged to demonstrate its readiness to meet the expectations of stakeholders, it is argued that these moves should reflect in the amount of investment made in insurance stock.

“I am not surprised that insurance stocks are doing well on the stock exchange market after all the sector has carried out enough campaigns in recent time to project its image,” Victoria Jonathan a shareholder in one of the insurance companies comments.

While Tialobi agrees that the move made by the insurance sector to promote its image could attract investors to buy into insurance stocks, he emphasizes that their performance would attract investment more. “The shareholder is more interested in what he gets out of investing in a business. A company like International Energy Insurance has the entire image it needs to sway people but it is not doing very well. Its share sells for as low as 50 kobo but AIICO profit declaration as at the third quarter is worth 1.4 billion naira. AIICO’s performance speaks for itself.”

He says he has nothing against campaigns and sundry efforts at image building, but they will not substitute for performance, according to him. “Image building is good but the most important thing is managing your company and making it a profitable venture,” he states.

Although claims settlement is said to be the litmus test of an insurance company, Jones adds that the insurance sector equally needs to invest and collect premiums if they are to make more impact on the stock exchange.

Nevertheless some industry watchers are optimistic that the stability returning to the country with the recent changes at the Federal Executive Council (FEC) will make the sub-sector lucrative again. For this reason, they advice investors not to be weary about the lukewarm performance of insurance stocks for now as it is likely to sail soon. Whether this postulation turns out true or not only time will tell. What seems clear is that investors do not want their fingers burnt at the stock market again.