….Post N476.72 million loss in FY 20I5
What do you expect when a company pays itself more than pursuing the strategic objective of maximising the value of shareholders? It will unavoidably make a loss.
The aforementioned scenario explains how Ensure Insurance Plc, formerly known as Union Assurance, spent 80 percent of its N2.31 billion premium income on management expenses of N1.81 billion.
The Nigerian insurer recorded a loss after tax of N476.72 million to end 2015 financial year. It has also always been recording recurring losses before it changed its name.
This unprofessional habit is common among insurance companies in Africa’s largest economy where thin profit margins are recorded as a result of huge management salaries.
When a company is not buoyant at the bottom line, it will find it practically difficult to pay dividend to shareholders. And when owners don’t get returns from a company, its shares will not be attractive to investors.
This explains why the share prices of most insurers quoted on the floor of the bourse have been stagnant at 50 kobo since 2011.
It is generally accepted financial principle that a company with very low profit margins may not be able to undertake projects that will enable it fulfil its strategic objective of adding value to shareholders’ wealth.
Little wonder we in Nairametrics are skeptical about the Insurance industry meeting the N1 trillion ($5.4 billion) industry insurance premium target by 2017 set by the National Insurance Commission (NAICOM).
While the NAICOM has rolled out policies to deepen penetration that will spur companies to growth, the aforementioned internal problems makes it difficult for these firms to thrive.
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