Last July, The National Insurance Commission announced a slew of regulatory pronouncements targeted at increasing the market capitalization of insurance companies. In a move that shocked the Insurance Sector, the regulator increased the capital base by 200%.
- Insurance firms underwriting general business have been mandated to shore up their capital from N3 billion to N10 billion.
- Composite insurance firms, that is, firms underwriting both life and general business will raise their capital from the current N5 billion level to N18 billion.
- Reinsurance firms will move up from the current minimum capital of N10 billion to N20 billion.
Insurance Companies have till June 30, 2019, to comply with this directive. To make things even more difficult, NAICOM also insists insurance company investors are not allowed to borrow from the banks to shore up their share capital thus relying only on equity to meet the capital requirements. Thus, they will have to raise money from the capital market or via strategic investors at least on the back of their current valuations.
Market Cap: Nigeria’s Insurance companies quoted on the Nigerian Stock Exchange have a combined market capitalization of just N99.5 billion. To put this into perspective, Dangote Sugar alone is worth about N115 billion and GTB’s half-year profit alone is over N90 billion. Nigerian insurance companies are so small they can hardly cater to an economy with a GDB of over N90 trillion.
Cheap stake: As investors scan through the over a dozen insurance companies listed on the exchange they might want to also focus on those that are even worth less than a billion on market valuation. That is, these companies can be bought for about $4 million. Here is a list
- Goldlink Insurance – N909 million
- International Energy Insurance – N487.9 million
- UNIC Diversified Holdings – N516.4 million
Combined, these companies are worth less than N2 billion and struggling. As expected, any potential buyers will have to pay a control premium and while raising cash to meet the minimum capital requirement. The upside, however, is that this is the surest way to get into Nigeria’s burgeoning insurance sector via a reverse listing.