Top insurance companies in Nigeria are expected to record higher claims in 2020 compared to 2019, as rising insecurity, health challenges, and protests triggered higher risks in a year marred by health and economic crises.
A cursory review of claims reported by insurance firms in the full year unaudited accounts for 2020 indicates that net claims are expected to top N112 billion in 2020, the highest since we started tracking the data in 2016.
Nairametrics pooled this data from the latest full-year reports of Custodian, NEM, Coronation, Mansard, AIICO, Consolidated Hallmark Insurance, Niger Insurance, and Cornerstone Insurance Plc, 8 of the biggest listed insurance firms in the country, with a combined balance sheet size of N650 billion. Custodian Insurance, the biggest by net assets, is yet to release its 2020 FY results.
Claims increase despite record premiums
Net Premiums collected during this period are estimated at about N164 billion, which is a 24.2% rise from the N132 billion recorded in 2019. This is despite a difficult year where most businesses faced cash flow challenges and cut spending on items considered non-essential or not tied directly to revenue generation.
Yet, insurance premiums spiked to record levels, suggesting Nigerians are increasingly getting insured knowing fully well that claims get paid whenever the need arises. Their bets paid off as operating risk crystalized across the country when insured firms faced loss of revenues due to covid-19, economic lockdowns, and social unrest.
With a projected N111.9 billion in net insurance claims in 2020, insurance firms under review spent about 31% more on claims during the year compared to the N85.3 billion incurred in the whole of 2019, and more than double the N46.1 billion paid out in 2016.
To make money from health insurance, firms in the sector secure insurance premiums that are higher than claims while also generating income from the premiums until claims arise. The same model is used for other forms of insurance such as general and life insurance schemes.
Net claims as a percentage of premiums have risen from about 54% in 2016 to about 68% in 2020.
Claims triggered by social unrest and an ailing economy
The Nigerian economy faced significant challenges in 2020 as the covid-19 induced lockdowns triggered a drop in top-line revenue for most businesses across the country.
With the economy in shambles, growing insecurity and social unrest persisted, leading to the heightened destruction of lives and properties across the country. In terms of social unrest, the EndSARS protest (against the Special Anti Robbery Squad SARS) was by far the biggest threat to the economy in 2020 when the largely peaceful protest against the now-defunct rogue police department, was hijacked by hoodlums.
The aftermath culminated in the arson of buildings, cars, and private property, while supermarkets, shops, and small businesses suffered widespread looting and destruction of their inventories and properties respectively. At the receiving end were insurance firms, which faced a potential increase in claims arising from companies that had secured insurance protection against such eventualities.
Following the EndSars protest, Ganiyu Musa, Chairman, Nigerian Insurers Association (NIA) explained that insurance firms’ projected claims running into billions could fall on insurance firms.
“Insurance companies may pay claims worth billions of Naira from losses of lives and properties that followed the #EndSARS protests. Underwriters expect the insured loss to run into billions of Naira.”
The global pandemic also increased health insurance claims as more Nigerians visited hospitals to seek medical care. Health Insurance is still largely for the working-class population with formal structured jobs, and is an increasing source of insurance premiums for most insurance firms.
Sector in general
A recent report from Fitch projects that Gross Premiums accruable to insurance firms in Nigeria could top N400 billion in 2020, despite challenges in the economy. According to the report, the life insurance segment of the market is expected to grow its collective premiums by 4.8% to N179.81 billion in 2020 while the non-life insurance segment of the market is projected to grow its premiums by a revised 2.9% to N248.85 billion in 2020.
These are the top stockbrokers in Nigeria – February 2020
The top 10 stockbroking firms on the Nigeria Stock Exchange have traded stocks valued at N126.74 billion in the month of February 2021.
The All-share Index of the Nigerian Stock Exchange (NSE) dipped by 6.16% in February 2021, a major drawback on the 5.32% gain recorded in the previous month to bring the year-to-date loss to 1.17%.
While they may not be Wolf of Wall Street, the top 10 stockbroking firms on the Nigeria Stock Exchange have been doing big businesses, and have traded stocks valued at N126.74 billion in the month of February 2021, accounting for 58.43% of the total value of shares traded.
This is contained in the Broker Performance Report for the month of February 2021.
A cursory look at the data shows that the February 2021 figure represents a 12.32% increase when compared to N112.84 billion recorded in January 2021 and 19.27% increase compared to N106.27 billion recorded in the corresponding period of 2020.
Stockbrokers by value
- Stanbic IBTC Stockbrokers is top on the list with trades worth N24.28 billion, representing 11.19% of the total value of traded stocks in The Exchange. It is worth noting that Stanbic IBTC also maintained the top spot in the 2020 ranking and also in the previous month.
- Absa Securities Nigeria Limited followed closely with trade-in stocks worth N23.64 billion, accounting for 10.9% of the total value. Absa Securities climbed by position from third recorded in January 2021.
- Cardinalstone Securities Limited stands third on the list with trades on stocks worth N18.98 billion representing 8.75% of the total trades. A step down from the second position held in the previous month.
- EFG Hermes Nigeria Limited followed with trades valued at N14.15 billion. This represents 6.52% of the total value of shares traded on the floor of The Exchange.
- Rencap Securities (NIG) Limited with a total value of N9.88 billion traded in stocks, accounted for 4.56% of the total recorded in the month of February.
- Others on the list include; Meristem Stockbroker (N9.25 billion), RMB Nigeria Stockbrokers (N8.89 billion), Apel Asset Limited (N6.26 billion), Imperial Asset Managers (N6.11 billion), and Cordros Securities Limited (N5.29 billion).
Notably, the top 5 firms in the month of January, did well to retain the top spot in the month under review.
Stockbrokers by volume of shares
- Cardinalstone Securities Limited topped the list in terms of volume of shares traded in February 2021, having recorded trades in 2.02 billion units of shares, hereby accounting for 11.33% of the total shares traded.
- Atlass Portfolios Limited followed closely with trades in 1.83 billion units of shares. This represents 10.24% of the total volume traded in the month under review.
- Meristem Stockbrokers Limited traded in 1.24 billion units of shares to stand in the third position. This accounts for 6.93% of the total volume of shares trades in the Nigerian Stock Exchange in February 2021.
- Morgan Capital Securities recorded total trades of 1.03 billion unit of shares, which represents 5.79% of the total trades.
- Stanbic IBTC Stockbrokers traded in 859.62 million unit of shares in the month of February 2021, representing 4.77% of the total traded volume.
- Others on the list include; Greenwich Trust (740.2 million), EFG Hermes (471.05 million), Rencap Securities (364.02 million), Apel Asset (344.13 million), and CSL Stockbrokers (300.49 million).
What you should know
- The All-share index dipped by 6.16% to close at 39,799.89 index points as of 26th February 2021 from 42,412.66 points recorded in the previous month.
- Of all the sub-indices captured by the Nigerian Stock Exchange, only two of them recorded positive growth in the month of February. NSE Growth index (+9.33%) and NSE Oil & Gas Index (+4.36%).
- Meanwhile, the equities market capitalisation currently stands at N20.78 trillion as of 2nd March 2021, while the total bourse capitalisation stands at N38.15 trillion.
How does a bank make N19 billion a month?
The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers.
How does a Financial Services Group make N19b a month, post a Profit After Tax figure of N230b in an environment where global commerce virtually ground to a halt in 2020?
The Zenith Bank Plc (Zenith) Year-end 2020 final results are a blockbuster, not just in the quantitative, but the qualitative as well. In all major headline numbers, Zenith posted growth on a Year-on-Year basis, specifically, Gross Earnings are up 5.2%, Net Interest Income up 12%, Customer deposits up 15.3%.
Somehow Zenith grew her loan book by 18% in a recession and reduced the volume of Non-Performing Loans in the same period. Zenith was also able to post a higher revenue number from non-interest income even as yields on fixed-income fell across Nigeria. I must stress, Zenith has posted these results by servicing her target segment of the high-end corporates in Nigeria.
So how did Zenith achieve this? I want to do a deep dive into how to make profits in a recession. However, it is important to start with a background on how banks make money which is basically in two ways;
- Interest income: which is income generated from the bank gathering deposits from customers and investors and “renting” out these funds to individuals and corporates for a fee called interest. Interest Income is seen as the main business of banks. It is a measure of how well the bank has fine-tuned its people, process, and systems to generate returns from a commodity called cash.
- Non-Interest Income: This is the income the bank generates from deploying its brands and people to juice revenues from activities that do not necessitate a transfer of cash. For Example, a bank asset management business leverages the bank’s skillsets to earn fees by providing investment advice to clients. Does a business want to expand? The bank can advise on the process to make that happen.
The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers. This allows the bank generate a spread between cost and revenue. The bank’s interest spread can be magnified by the number of quality loans it creates as Interest Income rests also on the quality of the loan book. Positive spread drives the funding of other banking services and is supported by the banks internal competencies to manage risk
So a bank makes profits by
- Attracting cheap deposits
- Earning positive spread
- Providing value addition for a fee
- Effective Risk Management
All these have to happen simultaneously. A bank that sources expensive deposits by paying higher rates generates a lower spread. Lower spread exposes the bank to cost overruns and will prove fatal to long-term growth.
With this in mind, let’s review Zenith FY 2020 Performance
- Attracting Cheap Deposits: In 2019, Zenith’s total interest expense, which represents how much it paid to get deposits was N148b, that figure dropped in 2020 to N121b. this means the bank was able to grow deposits by 25% but at a lower cost. How? Zenith changed her deposit mix, reducing borrowed funds/leases and time deposits by 41% and 38% respectfully and increasing the share of current accounts by 155%. By swapping the deposit mix, the bank’s cost of funds ratio fell by 18mn%.
- Earning Higher Spread: Zenith grew Net Interest Income by 12.2% in 2020. This figure represents income earned from the deposits and investments of the banking group. Again, this was achieved by asset mix reorganization. In the face of falling rates especially on shorter-dated FGN instruments, Zenith shifted allocation from Treasury bills to longer-dated FGN bonds which paid a higher yield. Zenith’s Non-interest Income also grew to N275b a 5% jump from 2019. This is driven largely by extraordinary items including foreign currency revaluation gain, which is the gain realized from the revaluation of foreign currency-denominated assets. I must highlight this. Zenith was able to post a gain of about N43b which is a 256% gain from FY 2019 based on the Naira being devalued to the US Dollar.
- Providing Value Addition: Value addition will include all non-core banking services Zenith Group provides to the public including subsidiaries like the Zenith Penson Custodians which has N4t in assets under custody. Commission on agency and collection was a big contributor to Zenith’s non-core banking revenue.
- Risk Management: Zenith was efficient in deploying its internal competencies to minimize and avoid risk and impairments from the ordinary and extraordinary course of business. Zenith like other financial institutions saw a pullback in commercial activities from her clients. Take the Commerce subsector, the Non-Performing Loan share in that sector grew from 9% to 24%. Zenith, booked an increase in the number of NPLs by volume to N125m in FY 2020 but the bank was able to keep the NPL ratio down to 4.29%. An extraordinary feat.
Overall, the bank was able to navigate a difficult year and post a good return and a handsome dividend of N3 to investors. Zenith was able to achieve all this while increasing the staff strength by 4.6% to 7555 employees.
However, there are red flags as well:
- Net Interest Margin was down in FY 2020 as yields declined. If yield continues to stay muted, can Zenith keep finding profitable avenues to invest that N5.34 deposit base?
- Interest income positive in FY 2020 at 420b but when compared to 2017, interest income is falling.
- If you ignore the revaluation gain, then Non-Interest income will be considerably muted, possibly negative in FY 2020
- Fees on electronic products fell 36% in an environment where online banking has been not just sound business practice, but life-saving as well.
Overall, in an environment with months of local and international shutdowns, Zenith has posted good numbers and demonstrated it is possible to eke out gains from a hard environment. When one looks at the dividend yield, P.E. Ratio of the bank, for me, this is a Buy.
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