Listed Nigerian insurance companies saw an 18 percent increase in directors’ emoluments and fees last year, even as most insurance stocks languish at 50 kobo per share, or par value.
Directors’ are key management personnel having the authority and responsibility for planning, directing and controlling the activities of most firms.
BusinessDay’s analysis of the 14 members of the NSE Insurance Index that have released audited 2016 Full Year results, shows that on a cumulative basis, directors’ emoluments and expenses increased to N1.517 billion from N1.28 billion in 2015.
The NSE Insurance Index include; NEM Insurance Plc, Prestige Assurance, Wapic Insurance, Law Union and Rock Insurance, Cornerstone Insurance, Regency Alliance Insurance, Aiico Insurance, Axa Mansard Insurance, Continental Reinsurance, Lasaco Assurance, Standard Alliance Insurance, linkage assurance, Niger Insurance and Staco Insurance.
But 10 of the 14 firms in the index are trading at the N0.50 per share mark, with zero capital gains in the past five years, while six firms recorded negative retained earnings for the period.
“Directors pay has been agreed since the start of the beginning of their tenure,” said Moronfola Monsuru, an actuarial analyst.
“If these firms pay consistent dividend, share price will go up. There has to be increased demand for insurance. Government should enforce laws that will make insurance more competitive,” said Monsuru.
BusinessDay’s analysis of the data shows that executive pay rose for eight firms, fell for five and remained at the same level from the previous period, in one firm.
Even for firms like Continental Reinsurance (N1.30/share) and AxaMansard (N2.30/share) that trade above par, investors have seen their share price go nowhere since 2013.
Nigerian insurers have to navigate a tough operating environment, as weak regulatory framework, low awareness and public apathy towards insurance continues to undermine growth.
In addition to the aforementioned challenges, firms are faced with rising inflation, a weak naira and the first recession in 29 years.
The insurance sector’s Gross premium to GDP ratio of 0.4 percent in 2015 was well below that of South Africa (14.7 percent) and Malaysia (4.8 percent).
For the year ended December 2016, the cumulative gross premium written for 14 of the 15 NSE insurance index firms was flat at N135 billion, less than the gross earnings of many tier II banks in Nigeria.
These firms would have recorded a 25 percent drop in underwriting profit but for Aiico Insurance’s strong underwriting performance that resulted in an 86.40 percent increase in cumulative underwriting profit to N27.15 billion.
Combined net income could have also fallen 42.01 percent in December 2016 excluding Aiico’s 756 percent surge in profit to N10.15 billion that resulted in a 38.81 percent increase in cumulative net income to N16.38 billion.
Claims expenses for the 14 firms, meanwhile, rose for the period, due to increased filing for motor insurance claims that were hitherto ignored.
The cumulative claims expenses of the 14 firms rose by 6.70 percent to N48.15 billion, while underwriting expenses was up 11.10 percent to N30.27 billion.
The insurance firms are spending more in running offices, branches and top management, as total operating expenses increased by 17.70 percent to N38.81 billion, as at December 2016, higher than May’s inflation figure of 16.25 per cent.
While, the insurance industry is going through tough times, analysts are worried about the low valuation of insurers and they are suggesting a scheme of mergers and acquisitions to help shore up capital.
The 14 NSE insurance index firms have a combined market capitalisation of N93 billion or $304 million, less than the market value of Nigeria’s most capitalised bank.
South Africa’s largest listed insurer, Old Mutual, has a market capitalisation of $12 billion by comparison.
“You still have the top six insurance companies owning and controlling more than 60 per cent of the market and that means the other 50 companies are not doing as much,” said Kabir Okunlola, head insurance audit group at KPMG.
Cornerstone Insurance (-519 million), Law Union and Rock (-24.4 million), Standard Alliance (-13.87 billion), Prestige Assurance (-777 million), Staco Insurance (-4.97 billion) and Linkage Assurance (-231 million), recorded cumulative negative retained earnings to the tune of -N20.39 billion as at the end of 2016, the data shows.
Negative retained earnings, often recorded on the balance sheet as accumulated deficit, means the company has more retained losses over time than accumulated net income.
Aigboje Aig-Imoukhuede, Chairman of Wapic Insurance, during the KPMG Insurance conference for 2017, called for an increase in the capital base of insurance companies in the country to N100 billion.
Insurance regulator, the National Insurance Commission (NAICOM) has tried to address this through its Market Development Restructuring Initiative (MDRI) with ambitious plans to increase both gross written premiums and premium to GDP ratio to N1.0 trillion ($3.1billion) and 4 per cent respectively even though there is no specific date set to reach that target.