What started as a small branch office of New India Assurance Company Limited in Mumbai – the largest general insurer in Afro-Asia region, before being incorporated in Nigeria in the early 70s, is now one of Nigeria’s largest general insurance firms, with a diverse range of general insurance service offerings and experience in the nation spanning over six decades. Today, Prestige Assurance predominantly provides accident and health insurance products and services.
Last year, a recapitalization order stipulated by National Insurance Commission (NAICOM) for all insurance operators to meet up with new prescribed minimum capital requirement for the sector, had sent the company racing towards expansion. This was particularly daunting, as it had also undergone a major capital restructuring in June 2018 in a share reconstruction exercise that led to the cancellation of about 1.6 billion ordinary shares of 50 kobo each towards removing bubble assets. The essence had been to have it wipe out its accumulated retained losses of N776.511 million.
NAICOM increased the minimum paid-up share capital of life insurance companies from N2 billion to N8 billion, non-life insurance from N3 billion to N10 billion, Composite Insurance from N5 billion to N18 billion and re-insurance companies from N10 billion to N20 billion. The companies in their respective threshes are to meet the new requirements by December 31, 2020 or stand the risk of losing their operating licenses. Shadowed by the new demand, the company commenced capital-raising efforts. Note that majority of its shares are owned by The New India Assurance Company Limited, founders of Prestige Assurance. It holds 69.50% equity in the company, while Leadway Assurance Company, holds 11.47% equity stake
It first made plans to increase its authorized share capital through the creation of an additional 14 billion ordinary shares of 50 kobo each. 13.6 billion ordinary shares of 50 kobo per share were then sold to existing shareholders at 50 kobo on the basis of 38 new ordinary shares for every 15 ordinary shares owned, in hopes that the funds to be raised would position the insurance firm to make its operations efficient and expansive enough to scale through the recapitalization hurdle. The proposed share offering was to take the company’s Authorized Share Capital from 6 billion ordinary shares of 50 kobo each to 20 billion – N3 billion to N7 billion.
Finally, just last week, it stated its intent to award a bonus issue to shareholders. The offer was for bonus shares in the ratio of 2 new shares for every 11 existing shares held by shareholders subject to the approval of the appropriate regulatory authorities, to be issued. The distribution of shares in lieu of cash dividends will have the firm increasing its number of outstanding shares, distributed proportionately, without using up its limited cash. This too serves as a recapitalization of some sort of the reserves and surpluses.
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The equity share capital will be increased and the reserves and surplus (retained earnings) of the company will be reduced, without negatively impacting total net worth. One good thing that could come out of this is that the market price of the shares might drop, making it even more attractive to new investors. With demand for insurance set to rise, the recapitalization exercise might birth a new opportunity with the company’s stock. Its Q1 2020 result was a testament to this, as Profit after tax grew by 63.7% to N582 million and Net Assets grew by 6.9% from N8 billion to N9 billion. With a price to book ratio of 0.3399, the seemingly undervalued company could have an opportunity for growth.